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Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today we are going to look at the latest fallout from the FTX fiasco, which has seen BlockFi file for bankruptcy with a Chapter 11 filing.
Background
It has been a turbulent year for crypto and the latest collapse will not help to keep investors enthusiasm within the market. This time it is BlockFi, which was last valued at $4.8 billion according to PitchBook, but as is often the case, it is all linked together with the events which have happened over the previous weeks, months, and years. First of all, the below tweet from BlockFi on Twitter, which was dated November 11th 2022, stated how they had paused activity which included withdrawals. This was the first major sign that things were taking a bad turn, after the company had navigated a difficult summer to remain afloat.
BlockFi is a crypto company which offers a trading exchange and interest-bearing custodial service for cryptocurrencies, andwas one of many firms to face serious liquidity issues after the implosion of Three Arrows Capital last summer. Back when the hedge fund Three Arrows Capital collapsed it was FTX founder Bankman-Fried who bailed out BlockFi after it had suffered losses on loans, cover the costs and ensuring that BlockFi remained operating. As part of this, there was an option to buy BlockFi by FTX for up to $240 million, as the CEO of BlockFi Zac Prince shared in a tweet, which I have included below.
On November 11th FTX filed for Chapter 11, which caused a major collapse within the crypto market. The saviour for BlockFi in their time of need was now in a precarious position of their own, with FTX plummeting from a $32 billion valuation to bankruptcy as their liquidity dried up, customers demanded withdrawals and the rival exchange Binance, who looked like it would be swooping in to acquire FTX, ripped up its nonbinding agreement after gross negligence had been discovered.
Chapter 11 Filing
On the 28th of November 2022 the company shared an announcement, which you can find , where they outlined they are filing for Chapter 11 in the U.S. Bankruptcy Court for the District of New Jersey.. Within they have claimed the bankruptcy was commenced to:
stabilize its business and provide the company with the opportunity to consummate a comprehensive restructuring transaction for all its clients and other stakeholders
BlockFi has a Bahamian subsidiary, similar to that of FTX, and within that subsidiary they moved for bankruptcy in the Bahamas concurrently with the American filing. Within the filing BlockFi indicated that it has more than 100,000 creditors and outstanding liabilities and assets ranging from $1 billion to $10 billion. This is a huge knock-on effect from the FTX fallout, BlockFi has listed FTX US as its second largest creditor within the bankruptcy filings, with the exchange owing them a staggering $275million. This clearly had a large impact on the resulting Chapter 11 filing for BlockFi, and is just the latest domino to fall from within the Crypto space.
Previous Dealings with the SEC
Previously BlockFi had been charged for failing to register its retail crypto lending product and violating the registration provisions of the Investment Company Act of 1940, via the finding of the U.S. Securities and Exchange Commission (SEC). This information was released in a press release, which can be found , in February 2022.
The crypto company agreed to settle the charges by paying a $50 million penalty to the SEC and an additional $50 million in fines to 32 U.S. states. As per the on Monday, BlockFi still owes the SEC $30 million. Things are a shambles to say the least, as one issue after another is likely to surface after this latest Bankruptcy filing.
Previously there have been the likes of Voyager and Celsius, which are also currently going through bankruptcy proceedings. It has darkened the crypto space with many now left questioning whether or not their money is safe, if they will get it back for those who could not withdraw, and which exchange will be the next to fall? Only time will tell, but for now, the markets seem to have reacted accordingly and more information is bound to emerge over the coming days and weeks.
Have a great day.
CryptoGod-1.
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