BlockFi, a crypto lender, filed for bankruptcy (chapter 11) protection on Monday, becoming the latest sector casualty following the firm’s exposure to the stunning collapse of the FTX exchange earlier this month.
The filing in a New Jersey court comes at a time when cryptocurrency prices have fallen. The price of bitcoin, the most popular digital currency by far, has dropped by more than 70% since its peak in 2021.
“BlockFi’s Chapter 11 restructuring highlights considerable asset contagion risks connected with the crypto ecosystem,” stated Fitch Ratings senior director Monsur Hussain.
BlockFi, situated in New Jersey and founded by financial executive-turned-crypto entrepreneur Zac Prince, alleged in a bankruptcy petition that its significant exposure to FTX caused a liquidity crisis. FTX, created by Sam Bankman-Fried, filed for bankruptcy in the United States earlier this month after traders withdrew $6 billion from the platform in three days and rival exchange Binance dropped a rescue proposal.
The liquidity crisis, according to BlockFi, was caused by its exposure to FTX through loans to Alameda, a crypto trading firm affiliated with FTX, as well as cryptocurrencies held on FTX’s platform that became trapped there. BlockFi’s assets and liabilities were listed as being between $1 billion and $10 billion.