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Crypto Lender Block Fi Updates Users on Platform, Fix Exposure

BlockFi stated in a message to its customers that was viewed by CoinDesk that the company “can no longer perform our business as usual.” According to the firm, given that FTX and all of its affiliates are currently engaged in bankruptcy proceedings, the “most responsible” move, for the time being, is to suspend various platform activities.

BlockFi has announced that it would not resume processing withdrawals and has requested that clients refrain from making any deposits in the meantime. The corporation has stated that the rumor that all of BlockFi’s assets, or even the majority of them, were taken into custody is not true. Because of this, the company’s assets would be locked up for an undetermined amount of time, and they might even be lost forever.

However, BlockFi does concede that it has “substantial exposure.” This “major exposure” comes in the form of obligations owed to BlockFi by Alameda, assets on the FTX platform, and an undrawn credit line from FTX. BlockFi, a problematic digital asset lender that was once valued at $3 billion but has now limited activity on its platform, was caught up in the crisis that was precipitated by the collapse of Sam Bankman-FTX Fried’s crypto empire.

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FTX Latest: EU License Under Threat as Asset Freeze Fuels Crisis. In Just a Few Days, Sam Bankman-16 Fried’s Billion Dollar Fortune Was Destroyed. On Twitter, BlockFi said that it will suspend customer withdrawals, citing “a lack of clarity” concerning the situation of former rescuer FTX US, in addition to the uncertainty that is affecting FTX.com and sibling trading company Alameda Research.

The company, which has its headquarters in Jersey City, New Jersey, requested that consumers refrain from making any deposits into their BlockFi wallets or interest accounts. According to a study for the second quarter, BlockFi stated that the total deployable client assets on their platform amounted to $3.9 billion.

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The recent events at BlockFi highlight growing concerns about the possibility of contagion following the collapse of the cryptocurrency exchange FTX and the trading firm Alameda Research. The collapse in the value of virtual coins in 2022 had already caused significant damage to digital asset lenders such as BlockFi and Celsius Network, which is currently in the process of filing for bankruptcy.

According to a person with knowledge of the situation, BlockFi was in the process of transferring its assets to FTX for custody when the news broke. The source continued by saying that the vast bulk of BlockFi’s assets had not been relocated as of yet, and asked not to be identified owing to the sensitive nature of the situation.

According to the source with knowledge of the situation, the cryptocurrency lender had extended loans to Alameda Research but did not identify the amount of those loans.

The loans are over-collateralized with liquid assets, including shares of Robinhood Inc., but BlockFi is no longer certain about the origin of the funding for its credit line with FTX US and the collateral for the Alameda loans, the person said, citing concerns that it may have originated with customer funds. Although the loans are over-collateralized with liquid assets, including shares of Robinhood Inc.

Investigations are being conducted by the United States Securities and Exchange Commission and the Commodity Futures Trading Commission to determine whether or not FTX.com improperly handled the monies belonging to its customers. Additionally, the United States Securities and Exchange Commission is looking into any violations of regulations pertaining to securities committed by Bankman-Fried.

FTX US provided BlockFi with a vital lifeline earlier in the year by offering a revolving credit facility with a maximum credit limit of $400 million as part of an arrangement that also included the option to purchase the company.

BlockFi was initially valued at $3 billion in March 2021, but in June of that year, the company attempted to seek capital at a decreased valuation of approximately $1 billion. In addition, the company was investigated by various financial regulators about its interest account, and it was required to pay a fine of one hundred million dollars to the SEC.

BlockFi was forced to take a loss of $80 million due to the bad debt of the cryptocurrency hedge fund Three Arrows Capital, which collapsed in May following the wipeout of the TerraUSD stablecoin.

Authorities in the Bahamas, where FTX.com has its headquarters, have placed a freeze on the assets of its local trading business and “associated parties,” which is further evidence that Bankman-empire Fried’s is in jeopardy.

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