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BlockFi preps for potential bankruptcy as FTX contagion spreads, report claims

CHINA - 2021/04/24: In this photo illustration the cryptocurrency exchange trading platform Blockfi logo seen displayed on a smartphone with the word cancelled on a computer screen. (Photo Illustration by Budrul Chukrut/SOPA Images/LightRocket via Getty Images)
Blockfi halted withdrawals of customer deposits, acknowledging it has 'significant exposure' to the bankrupt crypto exchange FTX. Photo Illustration: Budrul Chukrut/SOPA Images/LightRocket/Getty

Crypto lender BlockFi is making preparations for potential bankruptcy as the crypto contagion spreads to firms heavily exposed to the collapsed FTX exchange, a report has claimed.

Last Thursday night Blockfi halted withdrawals of customer deposits, acknowledging it has “significant exposure” to bankrupt exchange FTX and the associated trading firm Alameda Research.

According to a recent report by the Wall Street Journal, the cryptocurrency lender is preparing for potential bankruptcy after the collapse of Sam Bankman-Fried’s FTX exchange.

Check: Crypto live prices

The Wall Street Journal report claimed a source familiar with the matter said that Blockfi was now preparing for potential bankruptcy and that it is also planning to lay off some of its employees.

According to crypto media outlet Decrypt, BlockFi has also had talks with Binance about possible financial help.

Although the crypto lender admitted to having "significant exposure" to beleaguered cryptocurrency exchange FTX, on Monday BlockFi sent an email to its customers to allay fears that most of its assets were stored on the FTX exchange.

BlockFi said: "The rumours that a majority of BlockFi assets are custodied at FTX are false.

Read more: FTX crash wipes billions from market as Binance steps in to buy crypto rival

“That said, we do have significant exposure to FTX and associated corporate entities that encompass obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX US.”

After the fall Terra's Luna and UST tokens and the subsequent crypto-market crash, BlockFi accepted a $400 million line of credit from FTX US.

Read more: Crypto winter: Investment lessons from $2tn crash

In Monday's email to customers, BlockFi mentioned that it has "engaged expert outside advisors that are helping us navigate BlockFi’s next steps.

"Haynes and Boone continue to serve as our primary outside counsel, and BRG has been engaged as our financial advisor."

The Berkeley Research Group (BRG) is a restructuring firm used for bankruptcy proceedings.

Amid the current drama, the blue chips at the top of the cryptocurrency market are bleeding out, with bitcoin (BTC-USD) falling nearly 10% in value over the past seven days, to a subdued $16,867.

Ethereum (ETH-USD) fell nearly 6.5% in the past week to a low of $1,233.

The FTT (FTT-USD) token, which is the native cryptocurrency of the FTX exchange, has also plummeted in value from around $25 each before the crash, to $1.68, as of the time of writing.

Yahoo Finance has reached out to BlockFi for further comment but has yet to hear back.

Watch: It's too late' to use crypto as hedge against collapsing fiat currencies, says BitBoy Crypto | The Crypto Mile