The recent FTX collapse has shaken investors’ confidence in the cryptocurrency space and the fear is not surprisingly spreading to other companies. BlockFi, a crypto trading and lending company, is now being hounded by reports that FTX and Alameda have majority custody of its assets and potentially file for bankruptcy.
On November 14, BlockFi issued a statement to disprove all the rumors The company said that it is not true that the majority of their assets are with the now insolvent FTX, Alameda and associated companies. In the same announcement, they also admitted that they have “significant” exposure to FTX, Alameda, and associated entities. Details of the exact amount loaned or invested to FTX or Alameda were not revealed, but they expect the full recovery of the obligations owned to BlockFi
Despite the assurance that a big chunk of their assets did not go down with FTX, BlockFi still limited platform activities and suspended client withdrawals. It is also requested that clients do not deposit funds to their BlockFi Wallets.
The same announcement is currently being flashed on top of the BlockFi website. It reiterates that the business is not able to operate as usual.
Earlier this year several crypto lending firms began to show signs of distress which eventually led to the collapse of Celsius and Voyager. In July 2022, FTX signed a deal to acquire BlockFi for “up to” $240 Million. This made Sam Bankman-Fried, FTX’s CEO, the apparent savior of the crypto industry. Under the terms, FTX can only exercise the purchase option beginning October 2023. This most probably won’t come to fruition due to FTX’s filing for bankruptcy.
Can BlockFi Avoid Following FTX’s Path?
BlockFi, a US-based crypto company, was founded in 2017 by Zac Prince and Flori Marquez. BlockFi was able to get the attention of clients because of its high-yield crypto rates. The BlockFi Rewards Visa card is also one of the first crypto rewards credit cards in the market.
BlockFi is not new to scrutiny and its products that made it popular also became the target of regulatory investigations. In Feb 2022, the crypto company agreed to pay $100 million dollars in settlement to the Securities and Exchange Commission (SEC) and 32 states for failing to register its retail crypto lending product, which is a violation of the Investment Company Act of 1940.
The company has been doing well until a combination of unfortunate events led to this situation. It was once worth $3 Billion with over 800 employees. The bear market, Luna collapse, and Celsius contagion pushed BlockFi into a corner. In June 2022, the company announced a reduction of its workforce by 20 percent.
The latest rumor that BlockFi had allegedly entrusted the majority of its funds to FTX and/or Alameda is certainly not giving good optics to the company. The whole cryptocurrency community is already on the edge because of the multiple negative developments that happened in 2022. BTC which is considered to be the gold standard in digital assets has already fallen to a year-low of $15,500, a price which was last seen in 2020. We can only hope that BlockFi survives this because the downfall of another major crypto company will drag crypto asset prices further and with it the confidence and financial dreams of investors.
