Mark Tencaten | The Implications of bankruptcy filing by BlockFi

BlockFi, a troubled cryptocurrency lender, is the most recent platform to go down after the demise of FTX, another crypto giant. BlockFi stated that it has "substantial exposure to FTX" and will declare chapter 11 bankruptcy.

In the summer, BlockFi encountered issues as a result of the collapse of the cryptocurrency hedge firm Three Arrows Capital. FTX intervened at that time and provided a $250 million credit line to enable the business to survive. Sadly, it is now evident that FTX was unable to support other cryptocurrency businesses and probably lacked the internal infrastructure to do so.

The bankruptcy filing of BlockFi

BlockFi said in a statement that it and eight of its affiliates had started voluntary bankruptcy court procedures in New Jersey to stabilize the company and restructure in a way that "maximizes value for all customers and other stakeholders."

According to BlockFi, it has 256.9 million dollars in cash on hand, which it plans to use as a source of liquidity while reorganizing. Chapter 11 is commonly referred to as a "reorganization" bankruptcy since it enables a company to keep running while it figures out how to pay its creditors.

BlockFi's assets and liabilities total between $1 billion and $10 billion, with more than 100,000 creditors, according to its bankruptcy declaration. The business announced "recovering any debts owed to BlockFi by its competitors" will be its primary focus, including FTX and other corporate entities. This also means that FTX's bankruptcy procedure may delay the recovery of BlockFi funds.

What it implies for investors

According to Mark Tencaten, the announcement of BlockFi caused cryptocurrency values to decline marginally. Again, Bitcoin (BTC) came close to crossing the $16,000 threshold. For a few days, the lead cryptocurrency had been trading at roughly $16,500. However, until the effects of FTX have completely subsided, it will be challenging for prices to achieve any momentum.

Investors in cryptocurrencies would be advised to prepare for further contagion. Mark Tencaten says we are still determining how many other cryptocurrency platforms will be affected, but others have already collapsed. It's a good start that several prominent cryptocurrency exchanges have released proof of reserves in an effort to reassure investors.

Mark Tencaten claims that the demise of such a major business will lead to considerably stronger regulation of cryptocurrency exchanges. It might imply, for instance, that stablecoins must disclose their reserves in greater detail. It might necessitate stronger regulations for cryptocurrency exchanges. And it might lead to treating cryptocurrencies as securities, with considerably more regulation over how they are handled and communicated.

Over time, some or all of these factors might enhance the sector and boost investor confidence. The industry is absolutely lacking confidence right now. But it's likely to lead to more volatility in the near term. The FTX fiasco demonstrates that we are unaware of many crypto platforms' back-end operations. Increased oversight might show that other platforms aren't handling user funds as responsibly as we'd like.

What it implies for users of BlockFi

Customers of BlockFi might have trouble getting their money back. BlockFi advises keeping up with the newest news by following both Twitter and the business blog. It advises customers to keep their accounts open even though it begs them not to make additional deposits.

Finally, BlockFi has placed any loans that customers now hold into administrative forbearance. There won't be any interest or late fees associated with the loan. The credit bureaus won't receive a report if the loan defaults. Customers in the United States can get an automatic email from Scratch informing them of late payments. They can dismiss this email, according to BlockFi.

Conclusion

It is unsettling and disturbing if a cryptocurrency platform or any other institution that stores your money fails. Without having to worry about the possibility of your money being lost in the event of a platform failure, cryptocurrency values are already quite unpredictable. Mark Tencaten suggests that keeping the money in non-custodial wallets is one method cryptocurrency investors can use to safeguard themselves.

A crypto wallet might not provide the same revenue opportunities that a platform like BlockFi was able to provide, and opening your own bank carries some dangers. However, it can mean you might prevent losing your money as a result of an exchange or crypto loan platform failing during these extremely unstable times in cryptocurrency.