Crypto Crisis Continues as FTX-Backed BlockFi Files for Bankruptcy


The industry-rattling turn of events surrounding FTX’s implosion has claimed another victim.

Crypto lender BlockFi and eight affiliated debtors filed for Chapter 11 bankruptcy relief on Monday (Nov. 28).

As reported by PYMNTS, the company announced the move on its blog, saying it follows the earlier decision to pause activity on its site.

A Rocky Year

Only months ago, cryptocurrencies and crypto platforms were being positioned to change the way consumers would pay for goods and trade financial assets. Now, the knock-on effects of FTX’s collapse are subsequently knocking out the lights at its various entangled counterparties.

“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company,” said Mark Renzi, the company’s financial advisor, in a press release.

“From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders,” Renzi said.

It has been a rocky year for BlockFi, which raised $350 million at a valuation of $3 billion in March 2021 from an impressive roster of firms including Tiger Global and Bain Capital, and was reportedly hoping to one day become a publicly traded company. The lender suffered a “down round” during the crypto winter of 2022, shedding $2 billion from its investor-projected valuation, and was later forced to lay off nearly one in five employees this past summer as cryptocurrency markets continued their decline.


The lender’s one-time tentpole product, its BlockFi Interest Account (BIA), which promised high interest payouts to users, also came under fire by regulators questioning its legality in their jurisdictions.

BlockFi eventually had to pay $100 million in penalties to the Securities and Exchange Commission (SEC). It is unclear what financial products of BlockFi’s were subsequently registered or given license to operate, and as of this report, a BlockFi spokesperson has not replied for comment.

According to their bankruptcy filings, BlockFi still owes the SEC $30 million from that settlement, making the watchdog the company’s fourth biggest creditor on a list that includes more than 100,000 of BlockFi’s customers.

“Don’t just buy crypto — start earning on it. Open an interest account with up to 8.6% APY, trade currencies, or borrow money without selling your assets,” the company website still reads.

During the pandemic, crypto lenders like BlockFi boomed as they attracted swathes of retail customers by promising interest rates reaching into the double-digits in return for customers’ crypto deposits.

But while they acted like the “banks” of the crypto world, crypto lenders are not subject to the same degree of oversight and regulation as traditional, real-world banks, especially as it relates to holding enough liquidity or assets to cover their liabilities. Promoting high rates to accelerate user growth, then staking that growth and its corresponding customer deposits to speculative investments is not a sustainable business model over the long term.

It is easy to say that crypto lenders should have acted responsibly, like real banks, but regrettably, many — including BlockFi competitors like Voyager, which was purchased by FTX at bankruptcy auction and whose fate now remains unclear after FTX itself declared bankruptcy a little over a month after the acquisition — found themselves entirely exposed, with the money in their customers’ accounts unsalvageable.

FTX Fallout

BlockFi’s bankruptcy is similarly deeply entangled with FTX. The once-touted crypto exchange, led by Sam Bankman-Fried, extended a $250 million credit facility to BlockFi, which later ballooned into $400 million. Because of FTX’s own ongoing bankruptcy, BlockFi said it “expects that recoveries from FTX will be delayed.”

“We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us,” the company said in a blog post.

As PYMNTS’ Karen Webster wrote earlier this month, crypto experts have speculated that FTX’s bailout of BlockFi — and Voyager — were both designed, through somewhat heavy-handed financial engineering, to stave off a run on FTT tokens.

West Realm Shires, the corporate entity doing business as FTX US, is owed $275 million by BlockFi, making it the lender’s second biggest creditor.

This is a developing story, and PYMNTS will continue to report on the situation as more information comes to light.