A bankrupt crypto lender was affected by the collapse of Silicon Valley Bank.
Bankrupt crypto lender BlockFi had left $227 million in Silicon Valley Bank, which was shut down on March 10 by a federal regulator.
Accessing the unsecured funds BlockFi left at the failed bank could be a challenge until a buyer acquires them.
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The FDIC closed SVB on March 10 and opened a new bank called Deposit Insurance National Bank of Santa Clara.
SVB floundered after numerous companies transferred their cash from the bank when it failed to raise more capital after a $1.8 billion loss stemming from a bond investment that was sold because depositors wanted their cash deposits back.
After filing for bankruptcy in November, BlockFi held $227 million in unprotected funds through a money market mutual fund, the US trustee wrote in a March 10 court filing.
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Non-FDIC Insured Money Market Mutual Fund
Funds in a money market mutual fund are not covered by FDIC insurance.
The FDIC covers assets up to $250,000 and any amount above that level is considered an unsecured deposit.
The agency said on March 10 that it would “pay uninsured depositors an anticipated dividend within the next week. Uninsured depositors will receive a certificate of receivership for the remaining amount of their uninsured funds.” As the FDIC sells Silicon Valley Bank’s assets, future dividend payments may be made to uninsured depositors.”
The US Trustee said in early 2023 that he had warned the cryptocurrency lender that it might not be complying with the rules.
BlockFi said it planned to provide evidence that the company was in compliance.
But the US Receiver said that BlockFi had failed to comply on March 10 when the FDIC took over SVB.
BlockFi filed for bankruptcy
BlockFi filed for bankruptcy after the platform decided on Nov. 14 to suspend withdrawals and other operations due to its exposure to FTX, the failed cryptocurrency exchange that also filed for bankruptcy.
BlockFi, which had promised to compete with traditional banks, was one of the victims of the liquidity crisis caused by the collapse of sister tokens Luna and UST, which saw at least $55 billion disappear last May.
FTX and its sister company Alameda Research, the two heads of Sam Bankman-Fried’s crypto empire, were central pieces of the cryptocurrency industry. The two companies had played at being the saviors of the crypto companies and weakened after the failure of the two tokens.
This disaster triggered a credit crunch that caused crypto lenders Voyager Digital and Celsius Network to file for Chapter 11 bankruptcy. Hedge fund Three Arrows Capital was forced to liquidate.
Many other companies had been bailed out by FTX and Alameda Research. BlockFi signed a bailout agreement with FTX US, the US subsidiary of FTX.com last July. The deal included an option granted to FTX to acquire BlockFi at a variable price based on performance, but the maximum price was $240 million.
The deal also included a $400 million revolving credit facility. In the end, the transaction was valued at $680 million.
All of these bankruptcies have the same victims: investors who don’t know if they will be able to get their money back. FTX’s top 50 creditors, for example, are owed more than $3 billion, according to court documents.
