US-based cryptocurrency lending and borrowing platform BlockFi, previously one of the largest in the cryptocurrency space, filed for Chapter 11 bankruptcy protection on Monday. The company indicated that it expects to restructure and will continue operations for the time being.
The platform, which offers depositors a yield on their crypto holdings, halted withdrawals amid uncertainty caused by the spectacular collapse of cryptocurrency exchange FTX earlier this month.
BlockFi has over 100K creditors
According to the company’s bankruptcy filing, BlockFi owes money to at least $100,000 creditors. Its largest creditor is Ankura Trust Company, to which Blockfi owes $730 million in unsecured claims. Other large creditors include West Realm Shire Inc., the legal name of FTX US, to which Blockfi owes $275 million, and the SEC, to which Blockfi owes $30 million.
BlockFi agreed to pay a total of $100 million to the SEC and several state regulators earlier this year, as part of a settlement of allegations that its crypto yield product violated US state and federal laws. The settlement at the time forced BlockFi to register its yield product with the SEC.
Blockfi bankruptcy rounds-off rocky year
BlockFi’s Monday bankruptcy filing has been a rocky year for the cryptocurrency lending platform. Following the sudden collapse of the Luna cryptocurrency ecosystem in May and the liquidation of an unnamed large client (which many speculate may be the now-defunct crypto hedge fund Three Arrows Capital), Blockfi needed a line of credit from FTX to survive. Have to get
The $250 million settlement was soon converted to a $400 million facility, giving FTX the option to purchase BlockFi should they wish to.
That lifeline in July kept BlockFi ticking over until early November. But earlier this month, a liquidity crisis on FTX resulted in the sudden collapse of the exchange and put Blockfi’s line of credit in jeopardy. Things eventually came to an end with the company being forced to declare bankruptcy on Monday.
Crypto Credit Contagion Fear Weighs In On Sentiment
Cryptocurrency traders remain cautious on Monday as they question how much further the ongoing credit crunch in the space has to go. FTX has passed away untimely Produce And now BlockFi on its knees. How many more platforms can fall?
And how might the ongoing crisis affect society’s wider perception of crypto, as well as efforts by authorities to regulate the space? Current price action suggests that traders/investors regard recent events as 1) potentially acting as a drag on widespread crypto adoption, with consumer confidence in the nascent financial technology, and 2) ) could possibly be the result of a more aggressive approach from regulators in key markets such as the US.
According to CoinMarketCap, bitcoin changed hands around $16,200 in the last 24 hours, down about 2% over the past 24 hours. That is, the world’s largest cryptocurrency by market capitalization remains around Down 25% from its pre-FTX collapse levels Closer to $21,500. Bitcoin proponents argue that FTX and the ongoing credit crunch in the crypto space have nothing to do with bitcoin.
Rather, the failure of FTX is a result of human error and centralization, while the ongoing credit crunch is a result of over-financing of crypto. Bitcoin is the antidote to both such phenomena, they argue. But, according to the price action, the bears are currently in control.
Bitcoin traders will be hoping that US economic data and rhetoric from members of the US Federal Reserve will fuel optimism about a potentially less aggressive policy stance from the Fed in the coming months. Otherwise, bitcoin’s upside potential remains somewhat limited.
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