Crypto's new bankruptcy move: We are not FTX
If BlockFi is any indication, the new playbook in crypto bankruptcies is all about making sure everyone understands that you are not like FTX. At all. In any way. Not even a little.
Why it matters: FTX’s lengthy list of problems — like misuse of customer funds and creating tokens out of thin air to use as loan collateral — have blanketed the entire industry under a cloud of suspicion, and sent customers fleeing.
The latest: BlockFi, a crypto lending and trading platform, filed for Chapter 11 bankruptcy Monday morning.
- It blamed its downfall on FTX — and then quickly sought to put as much daylight between it and the disgraced crypto exchange (also bankrupt) as possible.
State of play: Mark Renzi of Berkeley Research Group, BlockFi's financial advisor, took great pains to praise the company's management in his first-day declaration.
- "To date, I have not found any failure of corporate controls or systems integrity, and I have found BlockFi’s financial information to be trustworthy," Renzi wrote. "BlockFi was forthright about what it would and would not do with funds on its platform—in stark contrast to others reported to have done the opposite."
Context: Remember the jaw-dropping first-day declaration of FTX's John Ray, who described an "unprecedented" failure of corporate controls and a "complete absence" of trustworthy financials? This is the antithesis.
- In talking about BlockFi and its management, Renzi sprinkles terms like "prudent stewardship," "knowledgeable and experienced," and "diligent" throughout his sworn statement.
The backstory: Renzi also spells out what led to BlockFi's insolvency — blaming the industry-wide dislocation that he says started with the blowup of the Luna coin and led investors to pull funds from any and all crypto investments.
- FTX provided BlockFi a rescue loan earlier this year, quelling BlockFi customer fears (and withdrawals) — until FTX itself collapsed. BlockFi also had assets on FTX’s trading platform, now trapped, Renzi says.
The bottom line: FTX will continue to be a potentially debilitating overhang for crypto companies. BlockFi wants to reorganize and emerge from bankruptcy — so further differentiating itself from FTX is one of its top priorities.
Go deeper: BlockFi bankruptcy filing claims Alameda defaulted on $680M in loans