Another crypto company has lagged behind, as the contagion from the collapse of the cryptocurrency exchange spreads throughout the industry: blockfy says it has filed for bankruptcy.
Lender BlockFi was one of the few companies to be bailed out in recent months, and its prospects have deteriorated significantly with the collapse of FTX.
Just over two weeks ago, the once-powerful crypto giant founded by Sam Bankman-Freed to introduce ordinary people into the opaque world of virtual currencies filed for bankruptcy. In the days that followed, the crypto industry, Wall Street, and even federal regulators predicted the next domino fall, wondering if the end of crypto was near or if broader financial stability was under threat.
Announcing its plans to file for Chapter 11 reorganization in New Jersey, where the company is headquartered, blockvi noted that FTX's own bankruptcy procedure would lead to a delay.
"Rest assured, we will continue to work on restoring all outstanding obligations to block-Fi as soon as possible," the company said in a message to customers.
Blockfy stopped withdrawing funds and asked its customers not to make any deposits. The company said on Monday that activity on its platform remains "temporarily suspended for the time being."
One of the country's three largest rating agencies, Fitch, said the bankruptcy filing was alarming.
Mansour Hussain, a senior manager at the agency, said BlockFi's restructuring highlights the "significant" risks of infection within the "cryptocurrency ecosystem," as well as possible flaws in how companies manage risks.
BlockFi has close ties with FTTx and close attention from regulators
BlockFi has close ties to FTX and the scrutiny of regulators
Almost every sector of the industry is experiencing a "crypto winter" this year. Bitcoin, the most popular virtual currency, has fallen in price by about 65%.
But BlockFi is particularly at risk of collapse in recent days because it is "significantly impacted by PHOTEX and related corporate structures," as the company's co-founders, CEO Zach Prince and chief executive Fleury Marquez, said in a letter to clients two weeks ago.
"We are deeply saddened to see the destruction taking place in an industry we love and believe in, affecting the lives of so many people," they wrote.
Over the summer, fitx agreed to provide blokfi with a $400 million revolving credit line to be used as support, in exchange for an option to purchase the company for up to $240 million.
"Ultimately, we found a great partner in the American FTX that shares our commitment to customers," Prince and Marquez said at the time.
Blockvi blamed its predicament at the time on the "volatility of the crypto market" and the broader market downturn.
The case suffered even more damage when another cryptocurrency lending platform, Celsius, filed for bankruptcy in June. Although blockvi said it had no direct contact with a competitor, it still saw an increase in customer withdrawals. Shortly after, blockvi suffered losses of about $80 million when a crypto hedge fund collapsed three equity holdings.
And in June, blockvi announced that it would reduce its staff by about 20%.
But BlockFi's problems go beyond market or macroeconomic conditions.
Earlier this month, the California Department of Financial Protection and Innovation temporarily suspended blockfy's loan and brokerage license for 30 days pending an investigation.
The company has already settled with Wall Street's top regulator, the Securities and Exchange Commission, for $50 million and agreed to pay an additional $50 million fine to more than 30 state regulators in February.
Washington Hopes To Prevent Even More Crypto Pain
Works
Washington Hopes To Prevent Even More Crypto Pain
The SEC said BlockFi failed to register its loan product with the commission and underestimated the risks it faced by making "false and misleading statements for more than two years on its website about the level of risk in its portfolio and lending activities."