NEW YORK: BlockFi, a lender in the troubled cryptocurrency universe, announced Monday it had filed for bankruptcy protection in the latest ripple effect from the FTX collapse. The Chapter 11 filing in a US Bankruptcy Court in New Jersey will allow BlockFi and eight affiliates to "stabilize its business and provide the company with the opportunity to consummate a comprehensive restructuring transaction that maximizes value for all clients and other stakeholders."
BlockFi, founded in 2017, had been in trouble early in 2022 amid a steep pullback in cryptocurrency values that led to client withdrawals and its liquidation of holdings of Singapore-based Three Arrows Capital, which ran into trouble. Over the summer, FTX provided $400 million in credit to BlockFi, enabling the lending firm to avoid bankruptcy. But FTX itself filed for bankruptcy protection on November 11.
Chapter 11 is a US mechanism allowing a company to restructure its debts under court supervision while continuing to operate. BlockFi said it was focused on recovering obligations from counterparties, including FTX. "Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the company expects that recoveries from FTX will be delayed," BlockFi said. BlockFi said it has $256.9 million in available cash, which "is expected to provide sufficient liquidity" throughout the reorganization.
The filing is the latest reverberation from the FTX crisis. Once worth as much as $32 billion, FTX has been in crisis mode in November following an apparent liquidity shortfall as investors pulled money from the cryptocurrency trading platform. In a November 17 bankruptcy filing, newly-installed FTX Chief Executive John J. Ray lambasted failures of oversight, incomplete records, missing and unreliable financial statements and "potentially compromised" leadership at FTX, which had a tight financial relationship with Alameda Research, a trading house also owned by former FTX Chief Sam Bankman-Fried.
Hong Kong crypto
Meanwhile, a major Hong Kong-based cryptocurrency exchange has scrubbed some of its social media presence two weeks after it halted withdrawals, fuelling fears the firm may collapse as the sector reels from the implosion of giant FTX. Atom Asset Exchange (AAX) prevented customer withdrawals on November 15, saying its capital position was under "acute pressure" after some investors asked for their money back. This came after the stunning fall of industry leader FTX, which was valued at $32 billion before it declared bankruptcy this month following an apparent liquidity crisis.
The Facebook and YouTube pages of AAX were no longer accessible Tuesday, with the exchange not responding to a request for comment from AFP. But AAX's website was still online though it displayed no spot trading data, with a notice dated November 12 saying the system was undergoing maintenance. Fears have been growing about possible contagion in the industry, with crypto lender BlockFi, which had received credit from FTX, also declaring bankruptcy Monday.
AAX has claimed it has no financial exposure to FTX or its affiliates and said it initially halted withdrawals only because of "abnormalities in our systems". But former head of research and strategy Ben Caselin said Monday he had resigned from the firm as the AAX "brand is no more and the trust is broken". "The way things are handled is without empathy and overly opaque," he tweeted. Investors have voiced frustrations with AAX in groups on the messaging app Telegram, with some calling for legal action against AAX executives.
Founded in 2018, AAX launched its exchange a year later as the first crypto user of matching technology provided by the London Stock Exchange. It recorded a spike in its spot trading volume earlier this year, according to data analysed by CryptoCompare, with $57.2 billion worth of trade recorded in July. AAX's plight comes after Hong Kong announced plans to encourage more retail investment in virtual assets, as officials scramble to catch up with regional rivals and bolster the city's fintech credentials. The Chinese finance hub was also the home of FTX until the firm moved to the Bahamas in September last year. - AFP