Will BlockFi be another FTX?

It can be remembered that, recently FTX and FTX.US crashed due to a lack of liquidity and mismanagement of funds, followed by a large volume of withdrawals from rattled investors. The value of FTX's native token, FTT, plummeted, taking other coins down with it including Ethereum and Bitcoin, which reached a two-year low as of Nov. 9. The spread and contagion effect from FTX was always a concern and now cryptocurrency lender BlockFi has fallen.

BlockFi's bankruptcy shares similarities with that of FTX, according to Eric Snyder, partner and chairman of the bankruptcy department.

BlockFi had been struggling even prior to the FTX collapse. In fact, the company was bailed out with credit support form FTX of which the company could access up to USD 400 million. BlockFi is not a traditional exchange, rather a lender in which it used cryptocurrency assets as collateral for the loans. As the value of the crypto assets has declined the value of the companys collateral became lower and lower and the company was unable to cover its liabilities.

The moment the FTX crisis broke out, the support the credit offered by FTX was of course no longer available leading to a liquidity crisis. The bankruptcy filing outlined that the company currently has 256.9 million dollars of cash on hand which it says will provide enough liquidity in the short term to keep it operational until a restructuring can be done. The company owes approximately 100,000 creditors and the top creditor is the SEC is number which is owed 100 million dollars to settle charges it has in relation to one of its products that it offered. The company has halted withdrawals from its platform and acknowledged the significant exposure it has to FTX.

Will BlockFi end up like FTX？

Crypto lender BlockFi Inc. filed for bankruptcy, becoming the latest digital-asset firm to collapse in the wake of the rapid downfall of the FTX exchange and stoking worries that more corporate failures lie ahead. Also according to the The manager of the financial group said that advising BlockFi has made it clear that the situations Is not the same as FTX. This is because they believe that the management teams of BlockFi are experienced, competent, and responsible as opposed to the leadership at FTX. There have been to date, “No failure of corporate controls and the companys financial statements have shown to be trustworthy”. The difference in management and leadership does represent a potential safe exit for BlockFi and perhaps a lower level of negative impact on the crypto sector.

Ultimately, the situation surrounding BlockFi just highlights how precarious the whole FTX crisis is and the potential for other firms to be caught up in the fiasco. With such an interconnected market other exchanges and entities need to stay vigilant and aware of their exposure to the falling value of their assets.