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Crypto Lender BlockFi Files for Bankruptcy as FTX Fallout Spreads (nytimes.com) 47

Posted by msmash from the how-about-that dept.
BlockFi, a cryptocurrency lender and financial services firm, filed for bankruptcy on Monday, becoming the latest company in the crypto industry hobbled by the implosion of the embattled exchange FTX. From a report: BlockFi had been reeling since the spring, when the collapse of several influential crypto firms pushed the market into a panic, sending the value of cryptocurrencies like Bitcoin plunging. In June, FTX agreed to provide the company with a $400 million credit line, which BlockFi's chief executive, Zac Prince, said would provide "access to capital that further bolsters our balance sheet." The deal also gave FTX the option to buy BlockFi.

But that agreement meant that BlockFi was financially entangled with FTX, and its stability was thrust into uncertainty this month after a series of revelations about corporate missteps and suspicious management at FTX. A few days after the exchange collapsed, BlockFi suspended withdrawals, explaining that it had "significant exposure" to FTX, including undrawn amounts from the credit line and assets held on the FTX platform. BlockFi is not the first crypto lender to collapse in a devastating year for the industry. After the spring crash, in which Bitcoin fell 20 percent in a week, two other lenders, Celsius Network and Voyager Digital, filed for bankruptcy. BlockFi, which is based in Jersey City, N.J., was created in 2017 and, as of last year, claimed more than 450,000 retail clients who can obtain loans in minutes, without credit checks. "We are just at the beginning of this story," Flori Marquez, a co-founder of BlockFi, told The New York Times in September. But its business has attracted close scrutiny from regulators.
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Crypto Lender BlockFi Files for Bankruptcy as FTX Fallout Spreads More

Crypto Lender BlockFi Files for Bankruptcy as FTX Fallout Spreads

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  • Get your money out now. Anybody who didn't already do that is simply begging to be stripped of value.

    • Re:He that panics first, wins. (Score:4, Insightful)

      by Opportunist ( 166417 ) on Monday November 28, 2022 @11:25AM (#63085292)

      No! Buy the dip! Please! I got a pile of shitcoins I need a bigger idiot for!

      • Reminds me of all those folks who were caught with GameStop. Some were suffering under the delusion that the stock market is a collective effort, that you should hand over your goals to somebody else's zealotry, and that taking a profit was a crime to the community.

        It's the Titanic. Folks are being asked to grab a bailing bucket, but there are lifeboats nearby. Pick a lane.

        • GME was shorted with 120+/-% of the available shares which don't exist (as wallstreet does not play fair) and hurt the forces by billions that tried to drive the business in to the ground / bankruptcy. I can't speak for GME or what they've done with the investment opportunity. But AMC was in a similar position and being picked on and trying to be driven out of the business. They capitalized on the faith of their mass retail investors and puled their collective fanny out of the fire and doing quite well. If

      • No! Buy the dip! Please! I got a pile of shitcoins I need a bigger idiot for!

        All the biggest investment banks are holding on to their Bitcoin investments, and Goldman Sachs actually increased their Bitcoin ETF positions, by over 20% [investors.com] in the third quarter.

        Clearly, these guys think there's money to be made, or they wouldn't be doing it.

        • Why wouldn't they? It has a proven record of separating people from their fiat currency. That was their job - they're attempting to reclaim it.

        • That might not signify what you think it does, too soon to tell. For one thing it might make the exchanges and minor/shit coins "uninvestable." It could be consolidation around Bitcoin, it could be gaming the manipulation ability of financially stressed companies, or something else.

          The fact that the twins' company is at risk (and with it a lot of fiat currency) means there is money to be made somewhere... the challenge is where.

          • Whats the difference between a minor shit coin and Bitcoin? Crypto makes no sense fundamentally for one important reason - it depends on fiat to function. Crypto firms have lots of bills to pay that must be paid in dollars/euros/etc - salaries, hosting fees, electricity costs, etc. the strength of crypto depends on fiat and the ability to redeem in fiat. The fundamentals dont work without state backing.

            • Whats the difference between a minor shit coin and Bitcoin?

              Brand, penetration, name recognition, history. The fact that it is established and many people use it as a store of value.

              I would not be one of those people though.

              The shitcoins do nothing to advance crypto; they were pure scams to make money for the founder.

        • Re: (Score:2)

          by linuxguy ( 98493 )
          Yeah. Plenty of big banks bought the dip on Enron also. And many big names invested in FTX and Theranos.

        • Yes! Buy! Buy! Keep the hype going, I still have unspent popcorn!

      • Re: (Score:2)

        by leptons ( 891340 )
        but... but... https://web3isgoinggreat.com/ [web3isgoinggreat.com] !!!!
    • The whole point of crypto is that is is decentralised, disintermediated, and autonomous. That means that there were no centralised exchanges, and no middle men. Within a few years there was a whole industry dedicated to end running those foundational values by hucksters, aided by the lack of regulation, and the total incomprehension of the general public. The understanding in the finance industry was that the world revolved around it, and what’s good for financiers, was good for the USA. During the la

  • Bianance is desperately trying to pump the market (Score:5, Insightful)

    by rsilvergun ( 571051 ) on Monday November 28, 2022 @10:53AM (#63085234)
    they're telling everyone they'll bail out the industry ala the Federal Reserve & US Gov't, but there's no way they have to cash for that, and it's clear they're trying to buy time.

    I'm glad to see it collapse. I was legit terrified that this crap would be integrated into the larger economy and eventually turned into 2008 style securities. I can't even imagine the scale of a crash if that happened.

    • Re: (Score:2)

      by gweihir ( 88907 )

      Indeed. I think this finally may have enough momentum for the much-needed crapcopin price correction down real value, i.e. to zero.

      • I'm super tempted to short every cryptocurrency and related company in existence, but I'm worried that its value could still be completely divorced from anything remotely rational and that prices could skyrocket tomorrow...we've got how many years of madness leading up to how many weeks of apparent sanity?

        • They are heavily manipulating the market using a ton of investor cash so I would be cautious about shorting. Also it seems like the US government is very carefully regulating them in an effort to slowly let the air out of the balloon instead of creating a pop that takes out people's savings before they have a chance to get them out..

          • Re: (Score:2)

            by gweihir ( 88907 )

            Well, the situation is clearly very opaque. Crapcoins must eventually crash, because they have no real value and the whole idea does not really work (low transaction frequencies, high transaction cost, lack of regulation, tons of criminals in there, immature tech, insecure tech, etc.), but there are tons of suckers that understand nothing but still have money they can be separated from. While currently there are a lot of exchange crashes (or more likely camouflaged rug-pulls), this may or may not cause the

    • Personally, I find the irony that the guys that rugpulled FTX to begin with are now finding the resulting rising waters at their own chin.

      Better hope you don't have too much ballast in your pockets, and you can float above those rising waters, Binance...

    • Companies were starting to offer crypto-currency 401k and IRA options. Had those grown, the crypto fall-out would have tanked the entire economy. In that sense, we've dodged a bullet.

  • Why would it go bankrrupt? It lends 100 bitcoins or whatever. Borrower must pay back 110 (to keep it simple) after a year.

    Value of a coin crashes. Now borrower owes chump change. Sucks for the loaner, as 110 is way less than the original value, but nothing here to collapse.

    • Borrower borrows 100 coins, trades them for a crap coin or puts them on one of the many, many exchanges that went tits up. Borrower no longer has the coins and they're broke so they can't just buy them.

      All involved could just wait until the price of Bitcoin crashes completely but the problem is BlockFi has real operating expenses that need to be paid with real money. They needed those 10 bitcoins to pay them. They probably also have a ton of real fiat currency loans from banks dabbling in high risk busi
      • More importantly, those original 100 coins had to be acquired at a price. The last time we talked about a crypto lender, I posted on this several times. The only way for a crypto-lender to make money is if the underlying token increases in value slowly over time and the interest in the loans is just a bit of extra gains. If the token crashes, the lender gets repaid but loses all of their original investment. If the token takes off, the borrowers won't be able to repay and the lender goes bankrupt. The i

    • Re:Chimp or chump (Score:5, Informative)

      by MachineShedFred ( 621896 ) on Monday November 28, 2022 @12:34PM (#63085508) Journal

      Because we have the same mechanics going on now as we did in 2009 with real estate. Consider:

      1. buy house for $0 down on a $400k loan with a balloon payment in 5 years that you plan on refinancing away from before it's due
      2. house depreciates 25% to $300k in the next 3 years
      3. you now cannot refinance because you don't have the equity to make up the difference and a bank doesn't want to underwrite a $350k+ loan for a $300k property
      4. balloon payment comes due and you're fucked. Short sale time, or foreclosure.

      This time around, it looks more like this:
      1. Put a bunch of real money into buying bullshit speculative crypto instruments
      2. FTX gets rugpulled and drags down entire crypto sector, devaluing basically all holdings by 20% or more
      3. Exchanges that are holding your crypto put a hold on withdrawls in order to try to keep themselves afloat
      4. you have payroll and lease payments due, in real money, but all you have is a bunch of devalued crypto that you can't touch and you're fucked. Bankruptcy time, or put yourself on the auction block.

      Enough of this happens, and the lenders are fucked too because all they have is a sheet of bad debts that aren't being paid, where the assets they hope they can recover through bankruptcy is worthless shitcoins that become more worthless by the day, and they can't touch either because it's all frozen while crypto-bros try to re-arrange the deckchairs while the waterline continually comes closer to the deck.

      There's real risk to even "real money" financial institutions depending on how deep their exposure is. This is kind of how AIG went down even though they were not involved in real estate loans at all, but ended up being the greater fool anyway by insuring derivative instruments created by the financial sector that was ultimately backed by what everyone thought was a safe bet - real estate. And it was a safe bet, until the mortgage companies started writing thousands of dogshit loans to borrowers that could never afford the terms (because they knew they would be selling those loans to someone else, and it became their problem), and credit rating companies started lying to everyone.

      • You have that mostly right. The only thing you got wrong is the problem didn't start with FTX, but really with Three Arrows Capital and TerraUSD and LUNA failing (a "stablecoin" and a linked coin to that stablecoin). Three Arrows Capital had a ton of money across all these exchanges, and other investment firms. When it effectively died, all the money it had lent or promised to lend and equity it owned in various crypto all was called in to resolve its own issues, causing the house of cards that is crypto to

  • Stinks of desperation (Score:4, Insightful)

    by Inglix the Mad ( 576601 ) on Monday November 28, 2022 @11:13AM (#63085270)
    Crypto has been a fine way to separate fools from their money. The only winners are the whales who got in early, or people who got mining early in the case of a few items. The problem is utility, wherein you can argue even gold's limited production utility is tangible, and therefore is superior to, crypto. Gold has real-world utility. People may be a bit foolish in thinking that it's value is much higher than the utility is in reality... because it's shiny and slightly rare on Earth... but at least Gold has a purpose.
    • IDK, I always look for crypto plated signal relay contacts. Much better than gold! Crapto offers picovolt signal levels.

  • That's a great sign... (Score:3)

    by fuzzyfuzzyfungus ( 1223518 ) on Monday November 28, 2022 @11:23AM (#63085282) Journal
    Even in the hypothetical world where FTX isn't a hilariously gigantic scam it seems like a bad sign that a lender and financial services shop would have that much exposure to another lender and financial services shop.

    Not a huge surprise, given that there's really nothing except pathological financial services outfits in 'crypto'; but it's hard to be optimistic about the viability of a system where a bunch of people are promising fairly optimistic returns based on nothing but investing in one another: even if no one player is intending to run a ponzi scheme there's basically no alternative to the outcome being a ponzi scheme when it's all people promising returns to their investors based on investment in other outfits that have the same business model; with no source of actual productivity to produce returns.

    • ... it's hard to be optimistic about the viability of a system where a bunch of people are promising fairly optimistic returns based on nothing but investing in one another...

      I'm personally not convinced there isn't an actual ponzi scheme or two lurking in this crypto morass, but more and more it seems like all these 'crypto bros' were conducting a huge circle-jerk at everyone else's expense.

  • Crypto will not achieve its real world potential until it suffers its own dot com bubble explosion level event. It desperately needs to have a massive fire that burns out all of the dead wood and stops people developing also-ran chains. We have a few Layer 1 chains now that are viable on a technical level to really be contenders at scale: Ethereum, Cardano and Ripple's XRPL. They are low cost, high performance and energy efficient Layer 1 chains that are extensible for adding Layer 2 coins that can enable u

    • Re: (Score:2)

      by tsqr ( 808554 )

      So... the way to save a medium of exchange where one of its highly-touted features is decentralization, is to centralize on "a few Layer 1 chains now that are viable on a technical level to really be contenders at scale?"

    • "Crypto will not achieve its real world potential until it suffers its own dot com bubble explosion level event. It desperately needs to have a massive fire that burns out all of the dead wood and stops people developing also-ran chains. We have a few Layer 1 chains now that are viable on a technical level to really be contenders at scale: Ethereum, Cardano and Ripple's XRPL. They are low cost, high performance and energy efficient Layer 1 chains that are extensible for adding Layer 2 coins that can enable

      • What do we get at the end that is better than what we have?

        The bottom half of my comment showed a real world, non-criminal use of crypto that was substantially cheaper for the seller than a credit card.

        If you actually read the rest of my comment, you would have seen that. There are services like BitPay and Coinbase Commerce that make exchanging back to fiat and super easy with stable coin transfers. It's a complete end run around services like PayPal at a fraction of the price.

        • I saw nothing useful in the second half of your comment. Sorry. Lower transaction fees are nice but they come at the cost of reversibility. I can get low transaction fees already for large transactioms via wire transfer. $25 flat fee for amounts up to my net worth. Arguably the SWIFT fees are less than Visa/MC if you buy a generator at Lowes. Notice that it isn't even a payment option.

          • Re: (Score:2)

            by tlhIngan ( 30335 )

            I saw nothing useful in the second half of your comment. Sorry. Lower transaction fees are nice but they come at the cost of reversibility. I can get low transaction fees already for large transactioms via wire transfer. $25 flat fee for amounts up to my net worth. Arguably the SWIFT fees are less than Visa/MC if you buy a generator at Lowes. Notice that it isn't even a payment option.

            The transaction fees are lower because basically he's using cash to pay for the item. That's all.

            That's why they're called "

        • I read it - I just didn't agree with it. I just don't see how it sums up to "better". Nobody has to use PayPal - they do it because it's convenient, not because it's necessary. To use "coins" in normal transactions that can be handled by current currencies, there has to be a very compelling reason - and there isn't.

          You need to buy into the philosophy first, and my need for the ability to buy and sell things to make my life work trumps your philosophy.

    • Why would you buy silver? Relatively low value metal at only 20/oz. Unless you make jewelry not sure I see the point.

    • But the cat is out of the bag on this because anyone who has used BitPay, Coinbase Commerce, etc. as a replacement for PayPal knows how awesome Eth +stablecoins can be.

      Ya got to find people who want to accept it, though. For instance, my violin teacher (and my wife's cello teacher) will take USD from PayPal & Venmo. Neither are interested in going near crypto-backed transfers.

      The stuff actually works IRL, it's just where the e-commerce was in 2002.

      Therein lies a problem: it's 2022 and there are plenty of payment options that work with the person next to me or across the planet that work just fine. Something that works as well as things did in 2002 is hardly a step forwards. Where is the need to pick it up?

  • Another day another crypto crash.

  • So FTX loans BlockFi 400 million, goes bankrupt, and now BlockFi can’t pay it back and goes bankrupt. How much theft does there have to be for FTX to use their customers money to give bad loans to other companies. FTX is the biggest crime of the century, stealing nearly 10 billion of customer funds and giving to their buddies via these loans, which their buddies can’t even pay back.
  • Crypto-snakeoil strikes again /s

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