BlockFi goes bankrupt as crypto contagion takes down another lender

The hits keep on coming.

BlockFi goes bankrupt as crypto contagion takes down another lender
Representations of virtual cryptocurrencies are placed on U.S. dollar banknotes in this illustration taken November 28, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

The crash of FTX and Sam Bankman-Fried’s crypto empire has rippled throughout the crypto world, shaking investor confidence in the industry and hurting other major players, like Genesis and Gemini. But the hits keep on coming. BlockFi is a crypto lender that got big by marketing to smaller investors looking to engage in the crypto market. It offered crypto-backed loans with no credit checks and high-interest accounts that used crypto deposits.

But, on Monday, BlockFi became the latest lender to go under when it filed for bankruptcy. BlockFi had already been in trouble earlier this year after the crash of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital. But guess who came to its rescue? Bankman-Fried. FTX is named in BlockFi’s bankruptcy filing as one of its top unsecured creditors, with a US$275 million loan. Two weeks ago, the company warned customers that it would stop withdrawals in the aftermath of FTX’s fall. So now, they’ll all have to wait out the bankruptcy process to see if they will get any of their money back.

Key comments:

“From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector,” said Mark Renzi of Berkeley Research Group, a financial adviser to the company. “BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”

“My dreams of starting a company, retiring early or being able to do something for my daughter are gone,” said Brett Coreau, a BlockFi trader in Florida who had about US$$30,000 on the platform. “If Bitcoin just dropped to zero, that would be one thing. But now it feels like some kid just stole my money and it doesn’t sit well with me.”

“This life-changing amount of money was so easy come, easy go that I can’t help but feel disassociated from it,” said Texas trader William Casey. “I’m just kind of letting things happen – it would be nice if we got our money back, but right now it’s just a kind of quiet resignation.”