Yet Another Bankrupt Firm Shows Billions in Assets Linked To the Now Bankrupt Crypto Firm
Blockfi reveals complicated FTX relationship
BlockFi, the crypto lending firm, has more than $1.2 billion in assets linked to FTX and Alameda Research, the two companies founded by the fallen crypto mogul Sam Bankman-Fried. This revelation came to light when unredacted filings assembled and uploaded by M3 Partners, an advisor to BlockFi’s creditor committee, were made public. According to the financial presentation, as of January 14, BlockFi had $415.9 million worth of assets tied up with FTX and $831.3 million in loans to its sister company Alameda.
BlockFi, which let users earn yield for cryptocurrency deposits, halted withdrawals on November 11, the same day FTX filed for bankruptcy. The crypto lender’s anticipated bankruptcy was officially announced on November 28, with the firm revealing during the first day of court hearings that it had $355 million in funds frozen on FTX and $671 million on a defaulted loan to Alameda, or a total of $1.026 billion. However, the latest financials now show that this figure is $1.247 billion.
The complicated relationship between BlockFi and FTX also included a $400 million line of credit the crypto lender received from the exchange in July 2022. The lawyer for the creditor committee reportedly confirmed that the unredacted filing was uploaded by mistake and declined to comment further. The presentation also revealed that the value of both the Alameda loan receivable and the FTX-linked assets have been adjusted to zero.
FTX Affects Many
BlockFi is not the only company affected by the collapse of FTX. Since FTX filed for bankruptcy on November 11, there’s been a growing list of other companies that have had to disclose their “exposure” to FTX and its related companies FTX US and Alameda Research. In this case, having exposure means a company lent money to, received commitments from, invested in, or had funds deposited with FTX or its related companies.
The phenomenon of a financial crisis spreading to other institutions, markets, and regions is commonly referred to as contagion. When a large institution like FTX implodes, it drags others down with it. The FTX contagion has claimed multiple crypto companies and continues to affect the industry.
It also follows an earlier report by Bloomberg claiming that as part of its bankruptcy proceedings, BlockFi is going to sell $160 million in loans backed by nearly 68,000 Bitcoin mining rigs. After all adjustments, BlockFi now has under $1.3 billion in assets, with only $668.8 million of which being described as “Liquid / To Be Distributed.” These include $302.1 million in cash and $366.7 million in crypto assets.
Contagion
The collapse of FTX has had significant effects on multiple crypto companies, including BlockFi. The crypto lender had more than $1.2 billion in assets linked to FTX and Alameda Research. This revelation came to light when unredacted filings were made public. The collapse of FTX continues to affect the industry, with multiple crypto companies disclosing their “exposure” to FTX and its related companies. It’s important for crypto firms and investors alike to be aware of the risks and potential contagion effects of such collapses and make informed decisions accordingly.
The collapse of cryptocurrency exchange FTX has had a ripple effect on multiple companies, leading to a phenomenon known as “contagion” in finance. This refers to the tendency for a financial crisis to spread to other institutions, markets, and regions. Since FTX filed for bankruptcy on November 11, a growing list of companies have had to disclose their “exposure” to FTX, which means they lent money to, received commitments from, invested in, or had funds deposited with FTX or its related companies.
One example is Genesis Trading, which announced on November 10 that it had $175 million in “locked funds” in its FTX trading account. This led to the company suspending withdrawals from its lending arm. Another example is the crypto exchange and stablecoin issuer Gemini, which announced withdrawals from its Earn product may be delayed due to its lending partner, Genesis, suspending withdrawals.
As part of our goal in providing transparency around this week’s market events, the Genesis derivatives business currently has ~$175M in locked funds in our FTX trading account. This does not impact our market-making activities.
— Genesis (@GenesisTrading) November 10, 2022
Genesis was not able to survive after this tweet and has since filed for Chapter 11 bankruptcy.
This chain reaction of events, known as the FTX contagion, has also been linked to the collapse of Terraform Labs in May 2022. This led to hedge fund Three Arrows Capital, lender Celsius Network, and crypto broker Voyager Digital filing for bankruptcy over the next two months.
The collapse of the cryptocurrency exchange FTX has had ripple effects throughout the industry, with a number of companies disclosing their exposure to the fallen crypto giant. Among those affected include institutional trading firm Genesis, blockchain financial services company Galaxy Digital, venture capital firm Sequoia Capital, hedge fund Galois Capital, crypto lending firm BlockFi, exchange Crypto.com, crypto market maker Wintermute, venture capital firm Multicoin Capital, and digital asset trading group CoinShares.
This is not the first time that contagion has spread through the crypto market. In 2013, the FBI shut down the Silk Road, a dark web marketplace that used bitcoin for transactions, and arrested its founder. This led to a 96,000 bitcoin hack from another darknet marketplace, Sheep Marketplace, and China’s Central Bank banning institutions from processing BTC transactions. The collapse of Mt. Gox in 2014, where 850,000 BTC were stolen, also had a significant impact on the crypto market.
