Blockfi/FTX: Another collapse indicates that the ecosystem is not sustainable

cryptocurrency has a brilliant future, as the lender for digital assets blockfi indicated on Monday. The problem was that the company said this in a submission to a US bankruptcy court.

Blockfi was one of the crypto companies that Sam Bankman-Frieds FTX was most exposed. It quickly stopped the withdrawals from its platform after FTX had lost this month. In his own bankruptcy application on Monday, Blockfi tried bravely to distance himself from his step to seek protection against creditors from the same step at FTX.

Blockfi argued that it could simply be reorganized and revived on the other side in the following weeks.

The company may not have been as spectacularly managed as FTX. But the sheer networking of the crypto industry indicates that the ecosystem is now unstable for all participants.

According to court files, Blockfi has liabilities of up to $ 10 billion, including customer accounts and comparative payments that the US stock exchange inspectorate owes it. However, the complicated relationship with FTX is the most interesting detail.

ftx saved Blockfi during the first wave of the crypto emergency in spring when the Terra-Luna stable broke together. Blockfi secured an emergency loan line of $ 400 million, which also gave FTX a cheap option for the immediate purchase of blockfi.

At the same time, the FTX trade arm, Alameda Research, had lent almost $ 700 million from Blockfi. The Blockfi cryptocurrency is currently also on the FTX platform. The Financial Times reported on Monday that Blockfi Bankman-Fried sued to confiscate its shares in the Internet stock exchange broker Robinhood. Blockfi claimed that he had pledged her to secure the loans of his FTX empire.

The sunny prospects of Blockfi appear unrealistic for two reasons. First, the FTX case with which it is intertwined must be quickly solved. In view of the disorder of the case, this is unlikely. Second, it is not obvious that the cryptocurrency sector is stable and healthy enough to enable a successful reorganization. Blockfi only survived the spring when the then powerful FTX arrived with a rescue package.

A few hard months in crypto have brought companies such as Three Arrows Capital, Voyager Digital, Celsius Network, FTX and now blockfi, while others are likely to falter. There are tactical reasons for Blockfi and his lawyers to put on a brave face. But there is little reason to assume that the crypto ecosystem can become stable or sustainable in its current form.