The collapse of one of the largest cryptocurrency trading platforms, FTX, has spread to the broader cryptocurrency market, as token prices for many cryptocurrencies tumbled at the news. FTX’s problems stemmed from a liquidity issue after their assets were tied up and couldn’t be used to pay out loans. FTX’s main competitor Binance was planning on bailing out FTX for the sake of the platform’s users but would have left FTX’s founder and CEO Sam Bankman-Fried with a net worth 94% lower than at its peak. Binance has since backed out of the deal, leaving FTX in a tough spot and Sequoia capital writing down the entire value of their stake in the trading platform. These results have left investors skittish and occasioned a cash run on tokens. This has caused crypto lender BlockFi to freeze withdrawals on their platform. More in this article from Bloomberg. – Ross Sinclair
Crypto Lender BlockFi Suspends Withdrawals in FTX Contagion
By Hannah Miller
(Bloomberg) – The crisis sparked by the collapse of Sam Bankman-Fried’s FTX crypto empire ensnared BlockFi, a troubled digital-asset lender once worth $3 billion but which has now limited activity on its platform.
BlockFi on Twitter said it will pause client withdrawals, citing “a lack of clarity” over the status of onetime savior FTX US as well as the uncertainty afflicting FTX.com and sister trading house Alameda Research.
The Jersey City, New Jersey-based company asked customers to refrain from depositing funds into their BlockFi wallets or interest accounts. In a second-quarter report, BlockFi said the platform’s total deployable clients assets amounted to $3.9 billion.
The developments at BlockFi underscore growing concerns about contagion from the toppling of crypto exchange FTX and trading house Alameda Research. Digital-asset lenders like BlockFi and Celsius Network, which is in bankruptcy, had already been buffeted by the rout in virtual coins over 2022.
BlockFi was in the process of moving its assets to FTX for custody, according to a person familiar with the matter. The majority of BlockFi’s assets had not been moved yet, the person added, asking not to be identified due to the sensitive nature of the matter.
The crypto lender had given loans to Alameda Research, the person familiar said, without specifying an amount.
The loans are over-collateralized with liquid assets — including Robinhood Inc. shares — but BlockFi is no longer certain about where the funding for its credit line with FTX US and the collateral for the Alameda loans came from, the person said, citing concerns that it could have originated with customer funds.
The US Securities and Exchange Commission and the Commodity Futures Trading Commission are looking into whether FTX.com mishandled customer funds. Bankman-Fried is also being investigated by the US Securities and Exchange Commission for potential violations of securities rules.
FTX US earlier in the year offered BlockFi a major lifeline by providing a $400 million revolving credit facility in an agreement that came with the option to purchase the company.
Originally valued at $3 billion in March 2021, BlockFi sought to raise money at a reduced valuation of about $1 billion in June. The firm also faced scrutiny from financial regulators over its interest account and paid $100 million in penalties to the SEC.
BlockFi took an $80 million hit from the bad debt of crypto hedge fund Three Arrows Capital, which imploded after the TerraUSD stablecoin wipeout in May.
Authorities in the Bahamas, where FTX.com is based, froze the assets of its local trading subsidiary and “related parties,” further signs that Bankman-Fried’s empire is teetering.
For crypto market prices: CRYP; for top crypto news: TOP CRYPTO.
- FTX.com Assets Frozen by Bahamas as Crisis Engulfs Empire
- FTX’s Sam Bankman-Fried Faces SEC Probe as His Empire Crumbles
- FTX US Signs Option to Buy BlockFi in Crypto Sector Shakeup
- FTX’s billionaire founder suffers 94% drop in wealth
- Investors paid in crypto by SA solar company
- The positive impact of regulations on cryptocurrency returns