BlockFi Files Motion To Allow Wallet Users To Withdraw Crypto

BlockFi hopes bankruptcy court will let users withdraw crypto from Wallet accounts, although yield-seeking creditors might not be so lucky

by Shalini Nagarajan /

December 20, 2022 07:37 am

BlockFi co-founder Flori Marquez | Exclusive art by Axel Rangel modified by Blockworks

Some BlockFi users affected by the crypto lender’s bankruptcy could be in for relief — if courts agree.

In a motion filed Monday with the US bankruptcy court in New Jersey, BlockFi requested authority to process withdrawals for crypto held in the platform’s Wallet accounts.

BlockFi Wallet accounts are separate to the platform’s interest-bearing yield products, essentially serving as a “hot wallet.” The platform’s interest-bearing accounts were not included in BlockFi’s motion.

BlockFi highlighted a section of its terms of service which states: “Title to the cryptocurrency held in your BlockFi Wallet shall at all times remain with you and shall not transfer to BlockFi.”

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“Clients should be able to withdraw such assets from the platform if they choose,” BlockFi said. The firm initially flagged intention for its withdrawal motion at the end of November.

BlockFi also sought permission to reflect transactions lodged after it suspended service on Nov. 10, in light of a liquidity crisis. This would effectively process user attempts at transferring funds between Wallet and interest-bearing accounts, as well as any pending trades.

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The firm’s request comes less than a month after it filed for bankruptcy. BlockFi had been mired in financial strife following market turmoil triggered by Terra’s depegging in May. Tanking prices led a number of crypto startups to file for bankruptcy, including rival lenders Celsius and Voyager.

Hedge fund firm Three Arrows Capital also went bust, failing to meet BlockFi’s margin calls on an overcollateralized bitcoin loan worth $1 billion.

But BlockFi had substantial exposure to collapsed crypto exchange FTX due to a rescue loan agreement signed in late June. The firm eventually filed for bankruptcy on Nov. 28 leaving up to 100,000 creditors out of pocket, with money owed estimated between $1 billion and $10 billion.

BlockFi is seeking similar relief for Wallet accounts maintained by its international-focused parent company registered in Bermuda, according to a screenshot of an email sent to users.

A hearing on the US request for Wallet withdrawals is scheduled for Jan. 9 at 10 am ET.

Updated Dec. 20, 2022 at 8:42 am ET: Added context about BlockFi’s loan to Three Arrows Capital.

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