The crypto world has been blindsided by Sam Bankman-Fried’s resignation and FTX’s subsequent mishandling. The bankruptcy and hack allegation of FTX leaves BlockFi with empty wallets.
Empty Wallets Everywhere
Opening the BlockFi website, you can’t help but notice the yellow at the top of the page. Stating there will be no withdrawals until further notice. Clicking on the link sends you to a November 11th  BlockFi notice. In the statement, BlockFi expresses shock that the crypto world found out about Alameda Research, FTXUS, and FTX in a tweet. They explain that they will not be allowing deposits or withdrawals from their platform indefinitely because of this. The platform states they are doing all this to be as transparent as possible.
BlockFi denies that their asset majority is being held in “custody.” But they said that commitments owed by Alameda, their assets on FTX, and a credit line through FTX have left them in a less desirable position.
BlockFi is not alone in its peril. Travis Kling, crypto asset manager of Ikigai, stated in a tweet this Monday that a “large majority” of their assets from hedge funds were on FTX, and they were only able to remove a small portion.
FTX logo
Show Us the Money
Sam Bankman-Fried resigned as CEO of FTX after filing for Chapter 11 bankruptcy on behalf of FTX, FTXUS, and Alameda Research on November 11th. After stating he had “F#&%ed up.” What happened next was something out of its “A Wonderful Life.” Only at the end of the day, there was no basket of coins but many tears. As their liquidity dried up, so did $32 billion in customer funds. People are outraged, and the demand for withdrawals was the nail in FTX coffers.
As if this couldn’t get any worse, FTX was hacked over the weekend. The hacker stole between $400-600 million. This left many suspecting the former CEO may be the hacker. The hacker is allegedly an upper-level insider. One thing is sure in all of this, FTX leaves BlockFi with empty wallets and lots of unanswered questions.
More Troubles for BlockFi
BlockFi has had more than its share of troubles this year. In February, after an SEC investigation, BlockFi made settlement payments after admitting their products were investments. The cost of violating the Investment Act of 1940 cost them 100 million dollars. The settlement was split 50/50 between 32 states and the SEC. They also had to stop selling these investments until they register each one.
This summer, BlockFi withdrew a $400 million revolving credit line from FTXUS. Alameda Research, whose close ties to FTX have left them in dire straights. Alameda also owes BlockFi obligations. All of this has left BlockFi scrambling to save its customers from further losses.
Customers are angry, and rightly so. Unable to move their money in and out of the platform, they wonder if they have lost everything and if they will see any of their money. Through all this, BlockFi insists they are liquid enough to offer many possible options, which they will reveal later.
Crypto coin with courtroom background
Weighing Their Options
Given BlockFi’s liquidity, they continue to explore their open options. Employing the help of BRG (advisors to Voyager’s Digital bankruptcy) and Haynes and Boone (an international law firm) was a solid move. They state they are being as transparent as possible as they try to resolve this fiasco in the best interest of their clients.
BlockFi asks its users for patience as FTX leaves BlockFi with empty wallets. Meanwhile, they weigh their options and devise solutions to one of crypto’s most significant setbacks.
Minutes ago, BlockFi announced it is laying off employees as they prepare for a possible filing for Chapter 11. The situation leads to speculation that CEO Zac Prince may be the next pauper!
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