Is FTX Collapse About to Claim First Huge Victim: BlockFi?

The first big victim of the unexpected collapse of the FTX cryptocurrency exchange has now emerged. 

It’s cryptocurrency lender BlockFi, which was bailed out last summer by FTX and its founder and former CEO Sam Bankman-Fried. The platform is preparing to file for bankruptcy, according to the Wall Street Journal.

The firm is planning to lay off some of its workers, the newspaper said, citing anonymous sources.

BlockFi didn’t immediately respond to a request for comment.

A bankruptcy filing from the crypto lender would not be much of a surprise. The firm had already begun to prepare its customers for this eventuality on November 14, by suspending cash withdrawals and warning that it would no longer accept deposits.

Withdrawals and Deposits Paused

“We determined late last week that in the current environment we could no longer operate our business as usual,” the company wrote to its clients on November 14. “Given that FTX and its affiliates are now in bankruptcy, the most prudent decision for us, in the interest of all clients, is to continue to pause many of our platform activities for now.”

It warned that the recovery of the obligations owed to the firm by FTX will be “delayed.”

“At this time, withdrawals from BlockFi continue to be paused. We also continue to ask clients not to submit any deposits to BlockFi Wallet or Interest Accounts,” the cryptocurrency lender said.

The company also said that: “The rumors that a majority of BlockFi assets are custodied at FTX are false. That said, we do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.

BlockFi signed a bailout deal with FTX US, the U.S. subsidiary of FTX.com last July. The deal included an option given to FTX to acquire BlockFi at a variable price based on performance, but the maximum price was $240 million.

The agreement also included a $400 million credit revolver facility. In the end, the transaction was valued at $680 million.

BlockFi, which promised to compete with traditional banks, was among the victims of the liquidity crisis caused by the collapse of sister tokens Luna and UST, which saw at least $55 billion disappear in May.