Sam Bankman-Fried was said to be the only person who could save crypto. As cryptocurrency markets crumbled following Terra's spring crash, the former FTX CEO bailed out and took over crypto firms. FTX won the bidding war for bankrupt crypto firm Voyager Digital in a highly advantageous deal in October.
With the demise of FTX, the firms that Bankman-Fried rescued are now in a precarious position. Last week, Voyager was put up for auction again. After weeks of speculation that the FTX collapse had crippled BlockFi, the company filed for bankruptcy in New Jersey today.
As BlockFi advisor Mark Renzi put it, the FTX "death spiral" has now spread to another crypto entity. BlockFi's bankruptcy had been expected for some time, but Renzi walks creditors, investors, and the court through his perspective as CEO of BlockFi in a detailed 41-page filing.
Exposure to two consecutive hedge fund failures, the FTX rescue, and broader market uncertainty, according to Renzi, all conspired to force BlockFi into bankruptcy.
Renzi is quick to point out that, in his opinion, BlockFi does not "face the myriad issues apparently confronting FTX." Renzi wrote that BlockFi is "well-positioned to move forward despite the fact that 2022 has been a uniquely terrible year for the cryptocurrency industry," citing a $30 million settlement with the SEC and the company's corporate governance and risk management protocols.
Renzi's "issues" could include FTX's well-publicized lack of financial, risk, anti-money laundering (AML), or audit systems. In a court filing, FTX's newly appointed CEO, John Ray, stated that he had never seen "such a complete failure of corporate controls" as in FTX.
Indeed, Renzi is keen to emphasize BlockFi's differences from FTX, arguing that FTX's intervention in summer 2022 ultimately worsened BlockFi's outcomes. Renzi works as a managing director at Berkeley Research Group (BRG), which BlockFi has hired as a financial advisor for its Chapter 11 proceedings.
Both BRG and BlockFi's legal advisor, Kirkland & Ellis, have experience with cryptocurrency bankruptcies. Both Kirkland and BRG represented Voyager during its unsuccessful auction to FTX. According to court filings, both firms have already received millions in fees from BlockFi for bankruptcy preparation work.
Renzi points to broader turbulence in the cryptocurrency markets, exacerbated by the collapse of crypto hedge fund Three Arrows Capital, as the driving force behind BlockFi's liquidity crisis, similar to filings in Voyager and Celsius Network's bankruptcies.
BlockFi, like Celsius and Voyager, provided extremely high interest rates on customer cryptocurrency accounts. All three companies were able to do so because of cryptolending, which involves lending customer cryptocurrencies to trading companies in exchange for high interest and collateral. Three Arrows, or 3AC, was "one of BlockFi's largest borrower clients," according to Renzi in a court filing, and the hedge fund's insolvency forced BlockFi to seek outside financing.
BlockFi's new round failed. Traditional third-party investors were scared away by "unfavorable" market conditions, according to Renzi, forcing them to turn to FTX just to make good on customer withdrawals. Unlike Voyager or Celsius, BlockFi had not yet suspended customer withdrawals.
FTX put together and delivered a package of loans totaling $400 million. In exchange, FTX reserved the right to acquire BlockFi as early as July 2023, according to the court filing.
While FTX's rescue package initially boosted BlockFi, dealings with FTX's Alameda Research Limited weakened BlockFi's stability even further. BlockFi attempted to execute margin calls and loan recalls on their Alameda exposure as Alameda unwound and FTX approached bankruptcy.
However, Alameda eventually defaulted on "approximately $680 million" in collateralized loans from BlockFi, "the recovery on which is unknown," according to the court filing.
BlockFi was forced to do something it had previously refused to do during the Voyager and Celsius meltdowns. BlockFi halted customer withdrawals on November 10, the day FTX declared bankruptcy. Investors at FTX, Voyager, and Celsius, for example, are now in limbo, with no access to their funds.
(Source:www.cnbc.com)
With the demise of FTX, the firms that Bankman-Fried rescued are now in a precarious position. Last week, Voyager was put up for auction again. After weeks of speculation that the FTX collapse had crippled BlockFi, the company filed for bankruptcy in New Jersey today.
As BlockFi advisor Mark Renzi put it, the FTX "death spiral" has now spread to another crypto entity. BlockFi's bankruptcy had been expected for some time, but Renzi walks creditors, investors, and the court through his perspective as CEO of BlockFi in a detailed 41-page filing.
Exposure to two consecutive hedge fund failures, the FTX rescue, and broader market uncertainty, according to Renzi, all conspired to force BlockFi into bankruptcy.
Renzi is quick to point out that, in his opinion, BlockFi does not "face the myriad issues apparently confronting FTX." Renzi wrote that BlockFi is "well-positioned to move forward despite the fact that 2022 has been a uniquely terrible year for the cryptocurrency industry," citing a $30 million settlement with the SEC and the company's corporate governance and risk management protocols.
Renzi's "issues" could include FTX's well-publicized lack of financial, risk, anti-money laundering (AML), or audit systems. In a court filing, FTX's newly appointed CEO, John Ray, stated that he had never seen "such a complete failure of corporate controls" as in FTX.
Indeed, Renzi is keen to emphasize BlockFi's differences from FTX, arguing that FTX's intervention in summer 2022 ultimately worsened BlockFi's outcomes. Renzi works as a managing director at Berkeley Research Group (BRG), which BlockFi has hired as a financial advisor for its Chapter 11 proceedings.
Both BRG and BlockFi's legal advisor, Kirkland & Ellis, have experience with cryptocurrency bankruptcies. Both Kirkland and BRG represented Voyager during its unsuccessful auction to FTX. According to court filings, both firms have already received millions in fees from BlockFi for bankruptcy preparation work.
Renzi points to broader turbulence in the cryptocurrency markets, exacerbated by the collapse of crypto hedge fund Three Arrows Capital, as the driving force behind BlockFi's liquidity crisis, similar to filings in Voyager and Celsius Network's bankruptcies.
BlockFi, like Celsius and Voyager, provided extremely high interest rates on customer cryptocurrency accounts. All three companies were able to do so because of cryptolending, which involves lending customer cryptocurrencies to trading companies in exchange for high interest and collateral. Three Arrows, or 3AC, was "one of BlockFi's largest borrower clients," according to Renzi in a court filing, and the hedge fund's insolvency forced BlockFi to seek outside financing.
BlockFi's new round failed. Traditional third-party investors were scared away by "unfavorable" market conditions, according to Renzi, forcing them to turn to FTX just to make good on customer withdrawals. Unlike Voyager or Celsius, BlockFi had not yet suspended customer withdrawals.
FTX put together and delivered a package of loans totaling $400 million. In exchange, FTX reserved the right to acquire BlockFi as early as July 2023, according to the court filing.
While FTX's rescue package initially boosted BlockFi, dealings with FTX's Alameda Research Limited weakened BlockFi's stability even further. BlockFi attempted to execute margin calls and loan recalls on their Alameda exposure as Alameda unwound and FTX approached bankruptcy.
However, Alameda eventually defaulted on "approximately $680 million" in collateralized loans from BlockFi, "the recovery on which is unknown," according to the court filing.
BlockFi was forced to do something it had previously refused to do during the Voyager and Celsius meltdowns. BlockFi halted customer withdrawals on November 10, the day FTX declared bankruptcy. Investors at FTX, Voyager, and Celsius, for example, are now in limbo, with no access to their funds.
(Source:www.cnbc.com)
