BlockFi Halting Withdrawals Following FTX and Alameda Collapse

    TheMorningCrypto Desk
    TheMorningCrypto Desk
    Published on November 11, 2022 6:49 PM

    Updated on January 9, 2023 12:50 PM

    BlockFi, a cryptocurrency lender, announced that in the wake of FTX's collapse, it would be unable to operate normally and would be restricting activity.
    BlockFi Halting Withdrawals Following FTX and Alameda Collapse
    Source: Marketwatch

    "Withdrawals will be stopped"- BlockFi

    In response to the failure of cryptocurrency exchange FTX, the crypto lending platform BlockFi made an announcement late Thursday night that withdrawals will be stopped.

    By the news involving FTX and Alameda, BlockFi tweeted, "We are startled and dismayed." Twitter is how both we and the rest of the world learned about this crisis.

    BlockFi claims that "we are not able to continue business as usual" due to the uncertainty surrounding the status of FTX, FTX US, and Alameda and further clarification is needed, so "we are limiting platform activity, including pausing client withdrawals."

    Customers were requested "not to make deposits" into BlockFi Wallet 

    Customers were requested not to make deposits into the BlockFi Wallet or Interest Accounts at this time. The firm promised to provide more information "as quickly as feasible," but cautioned that it might do so "less often" than it is accustomed to doing with its clients and other stakeholders.

    Tweet from BlockFi Just two days prior, founder and COO Flori Marquez tweeted that "all BlockFi products are completely operating," adding that the company would remain autonomous at least through July 2023.

    BlockFi and FTX US announced their agreement to a transaction in July of last year, under which FTX US would give BlockFi a $400 million credit line and grant the cryptocurrency exchange the chance to acquire BlockFi. Various conditions would affect the acquisition's price.

    At the time, BlockFi asserted that it had a solid balance sheet and was well-positioned for long-term stability.

    BlockFi tweeted that the arrangement with FTX for a credit facility "gives us access to money that further bolsters our balance sheet and platform robustness."

    The SEC, Texas, New Jersey, and California's financial protection agency were the previous organisations to launch inquiries into FTX before BlockFi made its disclosure.

    According to a statement from the Department of Financial Protection and Innovation, "we encourage customers to be aware of the risks of investing in volatile crypto assets." Consumers and investors should be aware that cryptocurrency assets are high-risk investments and shouldn't anticipate getting their money back in case they lose money.

    The agency stated that it takes its role as an oversight body extremely seriously and noted that "crypto asset providers are not governed by the same laws and protections as banks and credit unions, which are required to have deposit insurance."

    They stated, "We require anyone providing securities, loans, or other financial services in California to comply with our financial laws."

    FTX once valued at "$32 billion" fell due to a liquidity crisis

    According to various media reports, FTX, once valued at $32 billion, fell this week due to a liquidity crisis and may be short up to $8 billion. According to a Bloomberg article, the business might go insolvent without a cash infusion.

    The Wall Street Journal, Sam Bankman-Fried, the founder and CEO of FTX, loaned about $10 billion to its affiliated trading company Alameda Research. This represents about half of FTX's $16 billion in customer assets.

    Bankman tweeted on Thursday, "I fucked up, and should have done better," adding that he had, among other things, misread the platform's use of margin.

    Alameda appears to have shorted the stablecoin Tether, according to blockchain data, it was discovered late on Thursday.

    The FTX incident has caused the cryptocurrency industry as a whole to fear a "contagion" and, at one point, sent the price of bitcoin BTCUSD, -4.75% to its lowest point since November 2020.