Crypto lenders were one of the biggest winners of the 2021 bull run. These platforms gained huge popularity by offering high rewards. However, most of the lenders suffered hugely from liquidity crisis in 2022 and later filed for bankruptcy.
Crypto lender, BlockFi, was a victim of the contagion sparked by the implosion of the crypto exchange, FTX and filed for bankruptcy in November. Let’s take a closer look at the platform and the possibility of its survival.
What is BlockFi?
BlockFi is a financial services company that offers a range of products, including interest-bearing accounts for crypto assets, crypto loans backed by crypto assets, and trading services. BlockFi operates from the United States and aims to provide financial services for the crypto users.
We also want to share our general FAQ blog, which is regularly updated with important information: https://t.co/ievW7c7eqc
— BlockFi (@BlockFi) December 8, 2022
The company tried to bridge the gap between traditional finance and the growing crypto economy. It provided services that allowed individuals and institutions to securely and efficiently access the full potential of their digital assets.
In the summer, BlockFi had issues as a result of the collapse of the cryptocurrency hedge fund Three Arrows Capital. FTX intervened at that time and provided a $250 million line of credit to enable the business survive. Sadly, FTX lacked the internal infrastructure to back another firm.
Will BlockFi Survive?
While filing for bankruptcy, BlockFi, in a statement said it could “can no longer operate business as usual” and paused withdrawals and deposits. The company is currently sorting out its bankruptcy process. However, there are no indiciations if it will return to business.
In connection with our chapter 11 cases, the Supreme Court of Bermuda made an order appointing Joint Provisional Liquidators (JPLs) of BlockFi International Ltd (a Bermuda-incorporated entity). You can find more information on our FAQ: https://t.co/ievW7c6GAE
— BlockFi (@BlockFi) December 21, 2022
First, the collapse affected investors and user confidence. Meaning it is highly unlikely that crypto users would want to deal with the platform due to their ugly experience. Secondly, BlockFi will need huge liquidity to get back to business. And with the bear market hitting the industry, it’s hard to imagine such liquidity coming in.
Will BlockFi Allow Withdrawals?
Last month, BlockFi asked for approval from the bankruptcy court to allow customers withdraw funds from it wallet account. These accounts were reportedly not part of the BlockFi Interest Program. However, the motion was not applicable to accounts in the BlockFi Interest Program, which remain paused.
As of this writing, there are no clear indications that customers will be able to withdraw funds anytime soon. This is a developing story. So, we’ll share more details as it unfolds.
More information related to the Claims Process and the filing of Proof of Claims will be sent to clients at the appropriate time. Please note that, at this time, no deadlines have been set.
— BlockFi (@BlockFi) January 9, 2023
Which is Safer BlockFi or Celsius?
BlockFi and Celsius both filed for Chapter 11 bankruptcy protection. This means that customers’ fate might take years to decide as such legal proceedings are often lengthy.
What is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is a type of bankruptcy that allows a business to continue operating while it reorganizes its finances and pays off its creditors over time. In a Chapter 11 bankruptcy, the business typically files a plan of reorganization with the court that outlines how it will pay off its debts and regain profitability.
Chapter 11 filing grants the business protections from creditors’ collection efforts. Creditors can, however, vote on the plan of reorganization. And can propose their own plan if they are not satisfied with the one presented by the business. If the court approves the plan alongside creditors, the business can emerge from bankruptcy and continue operating.
The specifics of reorganization for crypto firms may be different from traditional companies. The main concern for a crypto firm would be the protection of its assets, specifically its cryptocurrencies, during the bankruptcy process.
Additionally, the bankruptcy court will likely have to grapple with unique issues related to the valuation of a crypto firm’s assets and how they are divided among creditors, which can be difficult to determine.
With that goal, the company today filed a presentation that provides all stakeholders with important historical background and context. You can find that presentation here: https://t.co/dUTJFLWIJR
— BlockFi (@BlockFi) January 9, 2023
It is also worth noting that in some cases, the crypto assets of a bankrupt firm would be considered as assets of the bankruptcy estate and controlled by the bankruptcy trustee, who would then liquidate the assets to pay off creditors. In certain jurisdictions, traditional bankruptcy laws might not protect crypto assets as they may be considered as property and not debt. This means a different set of rules may apply.
Both Celsius and BlockFi are bankrupt and customers are unable to access their funds. So, it is pretty difficult to declare anyone safer.
What Does BlockFi Bankruptcy Mean?
Users with exchange-held assets took the hardest hit in BlockFi’s bankruptcy. So, blockFi’s bankruptcy and reorganization determines how much they’ll get back if at all they receive their funds.
Finally, user’s who kept their funds in external or non-custodial wallets have no issues with assessing their funds. But those whose assets are stored in a BlockFi wallet have a different story. We have another piece coming where we’ll explain more of BlockFi’s bankruptcy.
Here is the second part of this article.
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