New details of the bankruptcy of cryptocurrency company BlockFi have disappointed creditors. Why?
BlockFi had a much larger financial connection to the previously bankrupt cryptocurrency exchange FTX and the trading company Alameda Research. The amount of funds blocked after both platforms collapsed was higher than BlockFi claimed at the time of the bankruptcy filing. The relevant information appeared in a draft publication by M3 Partners, an advisor to BlockFi’s creditors committee. We tell you more about the situation.
Note that new bankrupts in the cryptocurrency industry are emerging even today. The most recent such example was the Genesis trading platform, which is a subsidiary of the Digital Currency Group led by Barry Silbert. Last Friday, representatives of the giant filed for bankruptcy under Chapter 11 of the US Bankruptcy Code.
Before that, the head of cryptocurrency exchange Gemini, Cameron Winklevoss, had openly criticised DCG's top executives and demanded the resignation of the already mentioned Barry Silbert. As Cameron pointed out, Barry simply ignored the $1.2 billion hole in the company's balance sheet that arose after the collapse of the Three Arrows Capital fund.
The Winklevoss brothers
As it later turned out, Digital Currency Group itself owed Genesis Global Capital $1.65 billion. Accordingly, the current bankruptcy of the lending platform will create financial difficulties for DCG as well.
Who has gone bankrupt in the cryptocurrency industry
According to published documents, BlockFi had $415.9 million in assets related to FTX as of 14 January, as well as $831.3 million in loans to Alameda. The total amount owed based on this information is $1.247 billion.
In an interview with Decrypt, a BlockFi employee said that the company disclosed the truthful information on 12 January in a report on its financial affairs during the bankruptcy proceedings. That said, BlockFi’s management prioritises transparency, so there can be no deviation from previously reported figures. As a reminder, the platform’s bankruptcy filing was filed back on 28 November.
BlockFi
During the first day of court hearings, BlockFi’s lawyers said the company had $355 million frozen on FTX and $671 million on a loan from Alameda, which is a total of $1.026 billion. One lawyer from BlockFi’s creditors’ committee confirmed that the M3 Partners document was allegedly published “in error”, while declining to comment further.
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Along with this, Celsius, which filed for bankruptcy in July 2022, is also going through a debt restructuring process. The platform’s lawyer Ross Kwasteniet has now stated that Celsius’ assets will be difficult to liquidate due to the current situation in the crypto market, referring to the relatively low demand for digital assets due to the niche collapse. Several unnamed Celsius lenders have therefore proposed a new restructuring plan based on the issuance of its own token.
The initiative has several precedents: CoinFLEX, Bitfinex and others have come up with similar ideas in the past. Unfortunately, the issue of issuing tokens has one downside – issuing a new asset won’t help “create money out of thin air”, so it needs to have a fundamental value. Kwasteniet believes this can be done by “reviving” Celsius into a new version of the platform, which will already pay debts to token holders out of its profits.
It's worth noting that the former slinging platform could be relaunched as a "public company with the appropriate licences". In that case, the company would surely face much stricter regulation.
Former Celsius chief Alex Maszynski
Documents in support of the proposal are due to be filed next week, then it will be put to a vote of Celsius’ creditors. If they come to a consensus, the decision will go to a judge. And the possible approval by the court could already realise the prospects of resuscitating the platform.
By the way, Celsius was previously forced to get rid of some of its assets. In mid-January it became known about the sale of 2,700 new MicroBT M30S ASIC miners. This equipment was agreed to be sold for $1.3 million, with investment firm Touzi Capital being a party to the purchase.
ASIC miner for cryptocurrency mining
This situation was a clear demonstration of the dangers of close ties in the cryptocurrency industry. After all, if a market player goes bankrupt or even a fraudster, then a domino effect will create problems for all other companies as well. This would affect the financial stability of individual players, as well as the reputation of the entire industry. After all, the collapse of FTX, along with the subsequent market failure, has clearly scared away quite a few new investors.
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