BlockFi Heading For Bankruptcy As FTX Contagion Spreads

Company Insolvency And Liquidation

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Crypto lender BlockFi is preparing a bankruptcy filing due to its "significant exposure" to the bankrupt crypto exchange FTX, according to the latest report by WSJ. 

Key Takeaways

  • BlockFi initially denied its exposure to FTX, but now admits to it.
  • BlockFi ran into liquidity problems earlier this year, so FTX extended a $400 million revolving credit facility to the lender
  • Withdrawals were paused last week, and BlockFi is now planning to lay off some employees.

FTX Contagion Brings Down BlockFi

Earlier the lender denied that it had most of its assets at FTX. However, now it has acknowledged that it has an undrawn line of credit with FTX and obligations with FTX. In a blog post, it admitted that it does have ''significant exposure to FTX and associated corporate entities". This was due to FTX's bailout of BlockFi in July of this year, which involved FTX providing the lender with a $400 million revolving credit facility and the option to buy the company for up to $240 million.

BlockFi paused withdrawals and limited activity last week due to uncertainty about FTX, saying it couldn't operate as usual. In preparation for a possible chapter 11 filing, BlockFi is now planning to lay off some of its workers, per WSJ.

Fears of Further Fallout After Court Filing

Crypto market fears are growing after FTX reported a severe liquidity crisis in its bankruptcy filings and said it could have more than 1 million creditors. FTX founder Sam Bankman-Fried and his remaining employees reportedly spent the past weekend calling investors to raise financing for a shortfall of up to $8 billion, but have so far been unsuccessful. With BlockFi now heading into cryptocurrency, the repercussions could be even more severe.

The Bottom Line

The investments of FTX, and its trading arm Alameda Research have already had an effect on another cryptocurrency project. The CEO of African Web3 company, Nestcoin, announced this week on Twitter that the company held some of its assets with FTX and would now be forced to cut staff due to the exposure. Due to its complex mix of shell companies and foreign subsidiaries, the real effects of FTX's collapse may take some time to emerge.

Article Sources
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  1. The Wall Street Journal. ''BlockFi Prepares for Potential Bankruptcy as Crypto Contagion Spreads''

  2. BlockFi. ''November 14, 2022 BlockFi Update''

  3. BlockFi. ''''

  4. Court Watch. "All the FTX Filings in One Place".

  5. WSJ. "FTX Founder Attempts to Raise Cash."

  6. Twitter. "@YeleBademosi. 8:15 AM · Nov 14, 2022.''

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