Washington - One of the largest cryptocurrency lenders, BlockFi, announced its bankruptcy in the first major aftershock as a result of the bankruptcy of the FTX platform, the most important cryptocurrency exchange a few days ago, and in what seemed to be an infection that would not stop soon in this regard. sector.

A number of experts expect that cryptocurrency companies will continue to be subjected to more major strikes during the coming period, with the lack of investor confidence and the spread of the liquidity crisis among many companies operating in this sector, which drives many of them to bankruptcy.

Repercussions of the FTX Crash

Just over two weeks ago, cryptocurrency exchange FTX, which was founded by Sam Bankman-Fred to attract small investors to the world of virtual currencies, filed for bankruptcy.

Subsequently, Wall Street cryptocurrency experts and federal regulators predicted a domino fall, wondering if the end of cryptocurrencies seemed like a reality on the horizon.


The company, "Block Fi", started bankruptcy procedures under Chapter 11 of the US Commercial Code, which the company's leaders thought would allow the injection of new liquidity that would enable them to save the company.

BlockFi's assets are worth just over $1 billion, while its liabilities are close to $10 billion.

Earlier this November, the California Department of Financial Protection and Innovation temporarily suspended Block Fi's license to provide and broker loans for a period of 30 days, pending the results of the investigation.

The company had already settled charges with Wall Street's largest regulator, the Securities and Exchange Commission, worth $50 million, and agreed to pay an additional $50 million fine to more than 30 government regulators in February.

The SEC said BlockFi failed to register its cryptocurrency lending product with the commission and reduced the risk by making "more than two years of false and misleading statement on its website regarding the level of risk in its portfolio and lending activity."

BlockFi, one of the largest cryptocurrency lenders, has filed for bankruptcy (company website)

Rescue attempts are in vain

The collapse of the cryptocurrency hedge fund Three Arrows Capital triggered and accelerated wider turmoil in the cryptocurrency markets, leading to a liquidity crisis on BlockFi.

Blockfi offered exceptionally high interest rates on customers' crypto accounts, and was able to do so thanks to crypto-lending (lending customers' cryptocurrencies to trading firms in exchange for high interest and collateral).

One of Block Fi's largest borrowing clients was the hedge fund Three Arrows Capital, which prompted Block Fi to look for an external funding source.

Over the summer, FTX agreed to provide BlockFi with a $400 million revolving credit facility to back it up against its $240 million option to buy the company.

Following FTX's bankruptcy, BlockFi temporarily halted withdrawals to clients, and its shareholders could not access their funds.

The deterioration of the cryptocurrency market in early 2022 led some to expect that Sam Bankman Fried, former CEO of FTX, would be able to acquire and save all crypto companies.

But what happened was the collapse of FTX itself, and several cryptocurrency companies put themselves up for auction last week, followed by BlockFi filing for bankruptcy on Monday in New Jersey.

Marc Renzi, legal advisor to BlockFi, described what the cryptocurrency markets are witnessing as a "death spiral".

According to Renzi, several successive factors forced BlockFi into bankruptcy, and he blamed FTX for its lack of financial systems, risk awareness, anti-money laundering or auditing systems.

Meanwhile, newly appointed FTX CEO John Ray said he had never seen "such a complete failure of corporate controls" as he had at his company.

Congress intervened

On the other hand, the House Financial Services Committee announced that it will hold a hearing to investigate the events related to the collapse of the cryptocurrency exchange "FTX". They set a date for a hearing aimed at exploring the circumstances of the FTX collapse on December 13th.