By Evan Spicer
Director of Cryptocurrency Investigations
MyChargeBack
BlockFi was once a pioneer in the crypto lender space. However, in the wake of the FTX collapse, BlockFi has filed for Chapter 11 bankruptcy protection, mainly as the result of defaulted loans to FTX’s sister company, the hedge fund Alameda, which turned out to be a crypto scam.
The BlockFi collapse would have seemed shocking just a few months ago. However, given the FTX collapse, the downfall of BlockFi seemed inevitable. BlockFi was one of many dominoes that fell following the FTX collapse in November.
Given the interdependence of crypto companies, if one stumbles, many others fall down. The now notorious Sam Bankman-Fried, founder of FTX, was actually running a bitcoin scam and switching funds between Alameda and FTX. This worked for a while until he was no longer able to fund client withdrawals. The game was up and FTX was exposed as a crypto scam, but the catastrophe wasn’t over. In fact, it’s still unfolding.
In the ensuing weeks, crypto investors have lost massive amounts and bitcoin’s price is down 70% from its 2021 highs. BlockFi, once a force to be reckoned with and influential as a lender, is broke and shuttering its business.
The Block Fi Collapse: From Crypto Lender to Massive Debtor
BlockFi seemed to be doing everything right – at first. The lender was founded in 2017 by Zac Prince and Flori Marquez, both of whom had extensive experience in the financial industry. Their business model was simple at first: customers would borrow fiat currency using cryptocurrencies as collateral.
After a highly successful funding round, Block Fi added new products and services. Customers could also trade cryptocurrency and choose a compound interest account – which would reinvest returns. It offered its traders no fees and monetized its services by selling trading data to major cryptocurrency companies.
Things were going well for BlockFi, which continued to raise money from investors. However, there were a few setbacks. The site was hacked in 2020, which gave the hacker some information about customers but no access to funds.
BlockFi was also hit with objections from regulators. Just as the crypto lender reached a $3 billion valuation, the New Jersey Bureau of Securities categorized BlockFi’s interest accounts as an “unregistered security.” Several other states also made claims against BlockFi’s interest accounts.
BlockFi was forced to settle with the SEC for $100 million, but even worse, lost money because it could no longer offer its interest-bearing accounts to U.S. clients. This led to a shrinking valuation of BlockFi, but one bright area was crypto lending. However, when its crypto scam debtors FTX and Alameda defaulted, BlockFi also became a debtor.
How the FTX Collapse Spelled the End of BlockFi
BlockFi was no longer allowed to offer interest accounts domestically, so they focused on lending. Fortunately, many crypto companies needed leverage or loans. Unfortunately, they weren’t stable and were engaging in risky practices that led to loan defaults.
BlockFi was already hit with the downfall of Three Arrows Capital in the summer of 2022. FTX offered BlockFi with credit services to help it recover. However, the bitcoin scam FTX would later collapse, which spelled the end of BlockFI. Now BlockFi has to deal with 100,000 customers who are trying to get their funds back from the exchange.
Is Crypto Recovery Possible for BlockFi Customers?
BlockFi has now filed for Chapter 11. That means a New Jersey bankruptcy judge will be in charge of helping the crypto lender to stabilize its operations and find an arrangement that would be acceptable to clients and investors.
Chapter 11 allows businesses to operate to pay off clients, investors and creditors. The company has $256 million in cash but has to pay off between $1 billion and $10 billion.
It will take some time before clients will receive their funds, but bankruptcies can often be easier to deal with than crypto scams. Since the company is cooperating and the authorities are involved, that may improve the prospect of crypto recovery and it’s unlikely customers will be left entirely empty-handed.
How Do You Pursue Bitcoin Recovery If You’ve Lost Money to BlockFi or Another Crypto Service?
If you’ve lost money as a result of the BlockFi collapse, it’s important not to give up. It may take time, given the complex bankruptcy proceedings, but at least you know that the government has your back and there is no way that BlockFi can run away with your money, even if they were tempted to.
The question is how you can get your money back. It’s important to prepare a claim that will help you get results. MyChargeBack experts will consult with you, investigate your case and create a report that will increase your chances of retrieving your funds.
MyChargeBack Will Investigate Your Crypto Case
If you have lost money on the blockchain through unregulated brokers, bitcoin wallet hacking or fake merchants, talk to the MyChargeBack team. Our crypto investigations will provide evidence to bolster your claim.
MyChargeBack has developed working relationships with law enforcement agencies worldwide, have extensive knowledge and experience with crypto tracking and can improve your prospects of getting your funds back.
