Major Crypto Lender BlockFi Files for Bankruptcy

It is the type of development crypto insiders were hoping would not happen with crypto in so much trouble. Major cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection along with eight affiliates.

It is the latest crypto casualty to follow hot on the heels of the high-profile collapse of the FTX exchange earlier this month. The development happens as crypto prices plummet, with Bitcoin down more than 70% from its high in 2021.

To complicate matters, BlockFi revealed in court filings that FTX was its second-largest creditor, with $275 million owed on a loan extended earlier this year. BlockFi also said it owes money to more than 100,000 creditors.
BlockFi’s bankruptcy filing comes soon after two of its largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing losses suffered from adverse market conditions.
What does this mean for me? 
Crypto lenders act like banks in the world of crypto. Their heyday came during the pandemic, with droves of new retail clients leading to double-digit rates in return for their cryptocurrency deposits.
Major investors like hedge funds took calculated risks and paid a premium on rates to borrow the funds from lenders, earning handsome returns from the difference.
However, with crypto lenders like BlockFi not required to hold spare liquidity, as banks are required, many found themselves exposed when a shortage of collateral forced them to shoulder large losses as crypto prices tanked.