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BlockFi Emerges from Bankruptcy and FTX Considers Potential Reboot

The BlockFi lending platform has successfully achieved a remarkable turnaround nearly eleven months after its collapse in the aftermath of FTX. And FTX apparently has three bidders hoping to bring it back to life.

BlockFi has recovered from bankruptcy and is now set to reimburse most of its creditors, according to a blog post published on October 24. The crypto lender had followed in the footsteps of FTX, Voyager, and Celsius, which all filed for bankruptcy last year. Notably, FTX has recently declared that it is now deliberating a potential resumption of its own operations by mid-December.

The New Jersey-based firm's post-emergence plan, approved in court on August 17, encompasses three key actions: first, the pursuit of asset recoveries from FTX, Three Arrows Capital (3AC), and others, to potentially increase client recoveries; second, continuing the distribution of digital assets to clients, including BlockFi Interest Account (BIA) and Loan holders; and third, the maintenance of a claims reconciliation process to ensure precise representation of client claims in both asset type and quantity, ensuring equitable distributions of the remaining and recovered assets.

Recovering the assets from FTX and 3AC will be challenging, as both firms are deeply entangled in their own bankruptcy proceedings.

Withdrawals are now available to practically all BlockFi Wallet clients. BlockFi will begin the wind-down process for BIA and Loan clients with a first asset distribution scheduled in early 2024, subject to recoveries from the litigation against FTX and affiliates. A recent update in the BlockFi Wallet withdrawal FAQ now confirms that international users have been granted withdrawal access, which was previously denied to non-U.S. users.

In mid-2022, BlockFi faced liquidity challenges as Terra's stablecoin collapsed. At the time, FTX stepped in with a $400-million credit line to rescue the crypto lender. FTX itself declared bankruptcy in November, subsequently taking BlockFi down into bankruptcy as well. BlockFi's filing in November 2022 highlighted its loans to Alameda Research, a sibling company of FTX, as a pivotal factor contributing to its financial predicament.

FTX To Potentially Resume Operations

FTX has said it is evaluating proposals from three potential bidders to revive its status as an active crypto exchange. A decision on next steps is expected by mid-December, claimed the company's investment banker, Kevin M. Cofsky of Perella Weinberg Partners, during a recent court hearing in Wilmington, Delaware. FTX is reportedly in active discussions to finalize the specifics of binding agreements with these investors.

"Options include selling the entire exchange, including a valuable list of more than 9 million customers, or bringing in a partner to help restart the exchange. FTX is also mulling a reboot of the trading platform on its own," Cofsky said.

Since declaring bankruptcy last year, FTX has been actively seeking funds to settle its outstanding debts. According to court documents, the firm has so far recovered about $7 billion in assets, including $3.4 billion in cryptocurrencies. FTX and its primary creditor groups have provisionally resolved some of the most challenging disputes in the case, which will enable the company to submit a comprehensive payout plan in December, as explained by the company's attorney, Andrew Dietderich, during the hearing.

In standard bankruptcy procedures, these plans usually provide creditors with an estimated recovery percentage. However, FTX currently remains uncertain about the exact returns for its customers, which will partly depend on the outcome of a potential exchange sale or reboot.

It is worth noting that FTX founder Sam Bankman-Fried is currently on trial in New York on charges of fraud, for allegedly diverting FTX customer funds to his trading company Alameda Research. These funds were reportedly utilized for risky trading, political contributions and high-end property acquisitions before both entities went under. Bankman-Fried stepped down as CEO last year when the company closed its trading platform.