The bitcoin price has crashed under $17,000 per bitcoin this month, falling to lows not seen for two years, while the ethereum price has lost 75% since hitting an all-time high last year (with JPMorgan warning worse could be still to come) and wiping $200 billion from the combined crypto market in a matter of days.
Now, after another high-profile cryptocurrency exchange was hit by a serious warning, reports have emerged bitcoin and crypto lender BlockFi could be on the brink of filing for bankruptcy itself—potentially reigniting “mass panic” on crypto markets.
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“There are a number of scenarios that may be available to us, and we are doing the work now to determine the best path forward,” BlockFi, which suspended withdrawals and limited activity on its platform last week as the FTX crisis hit, wrote in a blog post, adding it has “significant exposure” to FTX.
Following the update, the Wall Street Journal reported BlockFi is preparing for a potential bankruptcy filing and possible layoffs, citing anonymous sources.
“The FTX insolvency is devastating for the entire cryptocurrency industry,” Dan Ashmore, crypto analyst at CoinJournal, said via email. “Bankruptcy proceedings are long, drawn out and will likely only end with customers getting pennies on the dollar, in any case.”
Earlier this year, during the aftermath of the implosion of the algorithmic stablecoin terraUSD and its support coin luna, BlockFi was given a $400 million lifeline by FTX that has now been almost entirely exhausted, according to the WSJ.
“BlockFi has the necessary liquidity to explore all options and we have engaged expert outside advisors that are helping us navigate BlockFi’s next steps,” BlockFi wrote in its blog post.
BlockFi has said it had assets on FTX it’s now unable to access as well as obligations owed by FTX’s affiliated trading firm, Alameda Research.
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“The FTX bankruptcy led to a panic among crypto investors and a massive withdrawal of assets from centralized exchanges,” Alex Kuptsikevich, senior market analyst at FxPro, said in an emailed note.
The FTX crypto crisis, triggered in large part by FTX’s reliance on its FTT exchange cryptocurrency that was designed to ease trading on its platform, has been seized upon by so-called bitcoin maximalists who have long criticized non-bitcoin cryptocurrencies—sometimes known as altcoins—and centralized crypto exchanges that hold bitcoin and other cryptocurrencies on users’ behalf.
“All of these centralized businesses with large piles of altcoins on their balance sheets are literally confidence games,” Cory Klippstein, the chief executive of bitcoin-buying app Swan Bitcoin, said via Telegram.
“They are inherently fragile, susceptible to a Lehman-like collapse at any time. And the only hope once under pressure is that another player will bail them out.