BlockFi Files Motion to Unfreeze Users’ Funds

• BlockFi requested a court order on December 19 allowing users to access funds locked on its platform. 
• The US Bankruptcy Court is expected to approve the motion on January 9, 2023. 
• At the beginning of FTX’s crisis on November 10, the crypto lender halted withdrawals of users’ funds.
• The crypto lender almost went bankrupt after liquidating 3AC capital earlier this year. 
• To stay afloat in challenging market conditions, the firm earlier received $250 million from FTX.

In a new motion filed in the United States Bankruptcy Court on December 19, BlockFi requested the court to let users access funds locked on the platform. 

Recall that on November 10, the crypto lender halted the withdrawal of users’ funds on its platform at the beginning of FTX’s crisis.

Currently, BlockFi is involved in two bankruptcy proceedings, as the United States and international branch of the crypto lender filed for Chapter 11 bankruptcy on November 28.

According to court documents, the motion to the US Bankruptcy Court is expected to be approved at a hearing on January 9, 2023. Similarly, another hearing about user accounts with BlockFi International Ltd will be held on January 13, 2023, before the Supreme Court of Bermuda.

In addition, the crypto lender notified affected customers via email of the development. The firm referred to the motion as crucial to returning users’ funds. An extract of the email reads 

“It's our belief that clients unambiguously own the digital assets in their BlockFi wallet account.”

Also, BlockFi sought the court’s approval to update users’ interfaces to reflect transactions that took place in between the suspension of withdrawal. However, users will be unable to withdraw and transfer on BlockFi interest accounts as the motion doesn’t affect them. 

Nevertheless, the crypto lending platform is working to ensure that users can reclaim their assets.

A Year to Forget for BlockFi

2022 is indeed, without a doubt, a year to forget for BlockFi. BlockFi liquidated 3AC Capital earlier this year and then needed a credit line from FTX as the crypto lender almost went bankrupt. The firm received a $250 million credit facility from the defunct cryptocurrency exchange. 

Following the FTX crisis in November, BlockFi suspended withdrawals and warned clients not to deposit any funds to its wallet or interest accounts. The company said it deposited some assets on FTX and has yet to receive some of the credit FTX had extended. 

Consequently, BlockFi filed for Chapter 11 bankruptcy protection to restructure and resume operations soon. In a press release, BlockFi said it has about $257 million in cash.

On the Flipside

• While BlockFi has exposure to FTX due to its credit facility and filed for bankruptcy a few days after FTX, its attorney Joshua Sussberg distinguished BlockFi from FTX at its first bankruptcy hearing in Trenton, New Jersey. BlockFi’s attorney noted that the company did not face the challenges facing FTX, which crashed earlier this month, fueling fears of contagion.

Why You Should Care

Due to BlockFi’s bankruptcy filing, its users have been left uncertain, as their funds are locked up. BlockFi reported $3.9 billion in deployable client assets in a second-quarter report. As a result of the recent update, users will have some relief as some clouds have been cleared.

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