Crypto unicorn BlockFi is being pulled into bankruptcy by FTX

Investors have poured $1.4 billion into the company since it was founded in 2017 – but that didn’t help either in the end. BlockFi, the crypto unicorn of founders Zac Prince and Flori Marquez, has reached the end of its life and is the next major victim of the FTX collapse. The company, which specializes in crypto loans, has not made any payments to its customers since November 11. Now BlockFI had to take the consequences and file for bankruptcy (“Chapter 11”) in the United States.

“Following the collapse of FTX, BlockFi management and the board took immediate action to protect customers and the company,” said Mark Renzi of Berkeley Research Group, the company’s financial advisor. “BlockFi has worked from the beginning to positively shape the cryptocurrency industry and move the sector forward. BlockFi looks forward to a transparent process that achieves the best outcome for all customers and other stakeholders.” So much for the rather positive wording about bankruptcy.

Prominent investors don’t help in the end

It is now focused on recovering obligations owed by BlockFi to its contractual partners. It is therefore hardly surprising that the announcement that internal measures to “significantly reduce expenses, including labor costs” will be initiated. In other words, mass layoffs are coming to the workforce very soon. BlockFi has $256.9 million remaining — providing “sufficient liquidity to support certain operations during the restructuring process.” It is also clear that this money is not enough to cover the outstanding loans of 1.8 billion dollars that the company is sitting on (more on this here).

Even the company’s very prominent cap table with well-known investors such as Valar Ventures, Morgan Creek Capital Management, Coinbase Ventures, Galaxy Digital, Susquehanna Government Products, Winklevoss Capital, DST Global, Pomp Investments or Tiger Global can no longer help – BlockFi, which was still praised as one of the top crypto startups in the world in 2021 and increased its valuation to three billion dollars via a $350 million funding round (Series D), is coming to an end.

BlockFi: Crypto startup boosts valuation to $3 billion

Enter the FTX debacle

The company is too heavily involved in the two major crashes of 2022. First, the Terra/LUNA collapse hit BlockFi hard because the company borrowed hundreds of millions of dollars worth of cryptoassets to fund Three Arrows Capital (3AC). 3AC stalled due to the Terra crash (which again started right after the US interest rate hike), and almost took BlockFi with it in June 2022.

Then the now universally ostracized Sam Bankman-Fried took the stage with FTX and gave BlockFi a $400 million loan — and on top of that secured the option to buy the company for up to $240 million. Only: Most recently after FTX’s bankruptcy on November 11th, the crypto industry is actually just waiting for the end of BlockFi. On November 11, the company said it would not be able to continue operations “due to the uncertainty surrounding the status of, FTX US and Alameda.” Users have not been able to access their crypto assets since that day.

BlockFi: Crypto lending firm may sell up to $240 million in FTX

The crash started earlier

But BlockFi has been in trouble for a long time. Because in the US, the financial authorities had focused on the company because it provided the aforementioned crypto loans. In early 2022, BlockFi was fined $100 million for violating the Securities Act of 1933 and the Investment Company Act of 1940. Specifically, BlockFi Interest Accounts (BIA) were in question. Not only were voucher-like tokens issued via these, but unregistered securities – such as shares in a company.

BlockFi swallowed the fine and then wanted to create a new, SEC-registered, crypto security called “BlockFi Yield” that would allow customers to earn interest on their crypto assets — but that plan ultimately came to an end.

BlockFi’s 100 million fine is good news for the crypto industry

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