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BlockFi halts withdrawals in the wake of FTX collapse

BlockFi

TL;DR Breakdown

  • BlockFi states that it can’t do business as usual after the collapse of  FTX
  • FTX.US gave BlockFi a $400 million revolving credit facility with an option to buy the company.
  • Several regulators have launched investigations against FTX

BlockFi has fallen victim to the collapse of the FTX behemoth. BlockFi said on November 11 that “business as usual” was no longer possible. It cited a lack of clarity surrounding FTX, FTX.US, and Alameda as the grounds for its decision. The crypto entity is added to the list of crypto exchanges impacted by one of the harshest crypto winters in history.

BlockFi stated that until there is clarity, it will restrict operations, including withdrawals. It also recommended that customers refrain from making deposits, although, given the current scenario, this is exceedingly improbable. According to credible crypto market analysts, the FTX collapse will have a considerably greater negative impact on the crypto market than the Terra LUNA-USDT debacle.

BlockFi, the crypto lender, drowns in the FTX contagion

In the wake of FTX’s demise, crypto lender BlockFi has suspended client withdrawals from its platform as part of a broader restriction on platform activities. The suspension comes just days after BlockFi founder and chief operating officer Flori Marquez informed users on Twitter on November 8 that all BlockFi products were completely operational.

BlockFi advised its customers that it has a $400 million line of credit from FTX US, a different firm from the one experiencing a liquidity crisis. In July of 2021, BlockFi and FTX US announced that they had reached an agreement for FTX US to issue a $400 million credit facility to BlockFi.

The credit facility would also permit the crypto exchange to buy BlockFi. The acquisition’s price would depend on various conditions. These terms included BlockFi’s approval by the U.S. Securities and Exchange Commission (SEC) to operate a revenue-generating service in the United States.

In addition, the business was required to have attained at least $10 billion in client assets by the time FTX US exercised its option and BlockFi’s annual revenue. If these conditions were met, FTX US would be required to invest as much as $240 million to purchase the lender. BlockFi might have been sold for as little as $15 million if the terms were not met.

This deal appears to be in jeopardy following the disclosure that FTX, the global company affiliated with FTX US, had a $10 billion hole in its books. Twelve hours earlier, BlockFi had assured customers that “all crypto transactions, including withdrawals, would continue as normal.” The crypto community has reacted negatively to BlockFi’s abrupt shift in language.

BlockFi was named the fastest-growing privately-held company in the United States during the month of August. However, recent events demonstrate that it is not immune to the crypto winter.

The developments at BlockFi highlight the growing concerns regarding contagion following the collapse of the cryptocurrency exchange FTX and the trading firm Alameda Research. By 2022, digital-asset lenders such as BlockFi and the bankrupt Celsius Network had already been battered by the decline in virtual coins.

FTX, under several federal investigations

FTX is currently the target of state and federal investigations and has ceased withdrawals. Even if FTX US is fine, according to FTX founder Sam Bankman-Fried, the company indicated on Thursday that it might cease trading in the next few days and encouraged its users to halt deposits.

The first stone was cast by California’s Department of Financial Protection and Innovation. On Thursday, the entity announced it was investigating FTX for its failure. Moreover, the agency urged impacted parties to submit complaints to it.

US Securities and Exchange Commission and Commodity Futures Trading Commission are investigating whether FTX.com misappropriated customer funds. The US Securities and Exchange Commission is also investigating possible violations of securities regulations by Bankman-Fried.

The general counsel of FTX US, Ryne Miller, has already instructed employees to maintain work-related records. This is typically done in response to subpoenas or other ongoing investigative tools or when a company anticipates litigation.

The chairman of the Senate Banking Committee, Senator Sherrod Brown (D-Ohio), has also called financial watchdogs to investigate what caused FTX’s demise.

While Sam Bankman-FTX Fried’s stock is plummeting, the United States moves on with a bill he backed. Senators intend to move forward with a bill that would increase oversight of the crypto sector. This includes the decentralized financial sector (DeFi).

Authorities in the Bahamas, where FTX.com is headquartered, froze the assets of its local trading company and “related parties,” which is further evidence that Bankman-empire Fried’s is on the verge of collapse.

FTX’s regional crypto exchanges resume withdrawals

FTX Japan has resumed yen withdrawals after the Financial Services Agency (FSA) expressed worry over the health of the crypto exchange. FTX Turkey stated elsewhere that it was striving to transfer all Turkish Lira balances to its customers.

Friday, FTX Japan published a brief announcement on its website. FTX Turkey conveyed their message via a tweet on Friday. The Turkish subsidiary announced on Thursday that it would automatically convert customer balances to Turkish lira at a 1:1 ratio. As of Friday evening Asian time, withdrawals on FTX International remained halted.

The hysteria surrounding FTX does not cease. The cryptocurrency market is in shock. Nonetheless, multiple entities are attempting to salvage what they can. The price of Bitcoin continues to be highly volatile. The price was temporarily able to surpass $18,200. However, at the time of publication, BTC had already dropped $800 from its daily high.

Florence Muchai

Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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