BlockFi Bankruptcy Hijacks More Customer Cash
The troubled lender filed for bankruptcy on Monday, the latest worry for users of the platform.
(Bloomberg) -- The bad news just keeps coming for retail traders with money on crypto platforms.
In the wake of FTX’s rapid downfall, BlockFi Inc. became the latest crypto lender to file for bankruptcy on Monday. The New Jersey-based company had warned customers more than two weeks ago it would halt withdrawals, and now traders have to wait out the bankruptcy process to see if they can get any of their money back.
Past examples offer little hope. Insolvency proceedings can take months or even years, and BlockFi had significant exposure to Sam Bankman-Fried’s empire of companies, which are themselves bankrupt.
“My dreams of starting a company, retiring early or being able to do something for my daughter are gone,” said Brett Coreau, a trader in Tampa, Florida.
The 38-year-old had about $30,000 on BlockFi, one-third of his entire savings and investments, and now can’t access any of it. He first started crypto trading in 2017, making as much as $100,000 from early bets on coins like Bitcoin. That allowed him to put a down payment on his house.
He was putting regular deposits into BlockFi’s interest-bearing accounts to sit and appreciate, enticed by yields as high as 9.75%. Although he knew keeping his savings in crypto was a “gamble,” he believed BlockFi was safer than other platforms since it was based in the US.
“If Bitcoin just dropped to zero, that would be one thing,” he said. “But now it feels like some kid just stole my money and it doesn’t sit well with me.”
BlockFi was already in trouble earlier this year, one of the casualties of the market selloff sparked by the May wipeout of the TerraUSD stablecoin and the implosion of crypto hedge fund Three Arrows Capital. It had about $80 million in losses due to bad debt from Three Arrows, Chief Executive Officer Zac Prince said in early July.
Then Bankman-Fried came to the rescue, injecting capital into BlockFi with an option to purchase the company. FTX US is listed in BlockFi’s bankruptcy filing as one of its top unsecured creditors, with a $275 million loan.
BlockFi also owes $729 million to Ankura Trust Company, the trustee for the platform’s interest-bearing crypto accounts. The sum, which makes Ankura the company’s biggest unsecured creditor, likely represents customer money stuck on BlockFi.
Despite BlockFi’s troubles and the collapse of other crypto platforms like Celsius Network and Voyager Digital earlier this year, San Diego-based computer engineer Wai Wah Chan thought his money was safe.
The 34-year-old engineer put his $600,000 nest egg into BlockFi interest-bearing accounts to capitalize on their competitive interest rates. He knew he was taking a risk, but believed BlockFi to be trustworthy.
When the company reached out with an opportunity to get even higher yields, Chan transferred all of his stablecoin holdings to a private client account. But ever since FTX began to unravel, it’s been radio silence from Chan’s private client manager on what happened to his funds. He says he’ll never invest in crypto again.
“At least they filed for bankruptcy so we’ll have their financial statements pretty soon,” Chan said about BlockFi. “I’d rather know something than know nothing.”
Others are trying to accept their losses and move on, despite the lost money. That’s the case for William Casey.
At first, he ignored the warning signs in the digital asset space.
“When you follow crypto for long enough, you get calloused to the threat of loss,” the Texas-based trader said.
He started to get worried when his BlockFi credit card was declined at a checkout counter. Casey immediately transferred the assets in his BlockFi Interest and Gemini Earn accounts into custodial wallets provided by the firms, which he believed he would be able to independently access.
But then he unsuccessfully tried to transfer the funds from his BlockFi wallet to his bank account on Nov. 11. Now, he has more than $30,000 stuck in limbo.
It doesn’t quite feel real for him yet, and he’s taking a “wait-and-see approach.” He said he’s been investing in crypto since 2013 and has made more than $400,000 over the years.
“This life-changing amount of money was so easy come, easy go that I can’t help but feel disassociated from it,” Casey said. “I’m just kind of letting things happen — it would be nice if we got our money back, but right now it’s just a kind of quiet resignation.”
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