BlockFi Wants to Release Some Crypto Assets

According to a document, the motion was filed on December 19 at the United States Bankruptcy Court for the District of New Jersey. The distressed lender sought authority from the court to honour client withdrawals from only its wallet accounts.

Recall that BlockFi suspended withdrawals on November 11 due to the effects of the collapse of the bankrupt crypto exchange FTX. The lender had received a $400 million revolving credit facility from FTX after it encountered liquidity issues due to the Terra-Luna ecosystem collapse.

Shortly after FTX’s downfall, the crypto lender filed for voluntary Chapter 11 bankruptcy protection, disclosing that its primary purpose was to recover all obligations owed by its partners, especially FTX and its affiliated entities.

BlockFi also filed customary petitions to enable it to continue its business operations under the court’s surveillance. The firm will be allowed to pay employees wages and benefits without restrictions upon approval.

The now-bankrupt lender has requested that the court authorise it to release the crypto assets in its wallet accounts.

BlockFi cited part of its Wallet Terms of Service (Toss), which stated that the title of cryptocurrencies deposited in wallet accounts would always belong to the user.

“The title to the cryptocurrency held in your BlockFi Wallet shall at all times remain with you and shall not transfer to BlockFi. BlockFi shall not sell, transfer, loan, hypothecate or otherwise alienate cryptocurrency held in your BlockFi Wallet unless specifically instructed by you,” the ToS read.

Over $290M Pending Withdrawals From Wallet Accounts

Furthermore, BlockFi indicated that cryptocurrencies in wallet accounts do not belong to the bankruptcy estate and were deemed eligible to be returned to clients, unlike those in its interest-bearing accounts.

The lender also requested to update the user interface to properly reflect transactions and assets held in users’ accounts as of the time the company halted operations.

BlockFi pointed out that as of the Platform Pause Time Stamp, there were over $290 million pending withdrawals from the wallet accounts.

(by William A. Frederick)