Tech analyst warns crypto companies will 'fall like dominos' as FTX contagion spreads
BlockFi files Chapter 11 bankruptcy after pausing services due to 'significant exposure' to FTX
BlockFi bankruptcy a 'contagion' pattern from FTX fallout: Pete Pachal
Coindesk content chief of staff Pete Pachal predicts the FTX contagion will continue, and markets are waiting for the next 'domino to fall.'
Two weeks after pausing services on its platform, BlockFi filed for bankruptcy, leaving investors and users uncertain about their assets.
One analyst argues BlockFi is the latest domino to fall as he anticipates more crypto companies will crumble after exposure to the FTX.
"So the name of the game right now clearly is contagion," Coindesk content chief of staff Pete Pachal said on "Mornings with Maria" Tuesday.
"It's kind of a pattern now with these crypto collapses," he added. "You have a company, whether it's got into trouble over bad investments or is a bad actor, most recently, FTX collapses, so then anyone who had exposure to that company now starts to fall like dominoes."
After FTX filed for bankruptcy over two weeks ago, BlockFi paused all services due to "significant exposure" to the crypto exchange and issued a statement on the website detailing efforts to recover "all obligations owed to BlockFi."
The company made a deal in July where FTX would provide a $400 million revolving credit facility with the option to buy out the company for $240 million. The deal was designed to stabilize BlockFi, which ran into problems as crypto prices plunged and sparked a liquidity crisis among a number of over-leveraged firms.
Contagion from FTX will continue to spread according to Pete Pachal. (Reuters/Dado Ruvic/Illustration/File Photo / Reuters Photos)
On Monday, BlockFi announced it filed under Chapter 11 for bankruptcy. The crypto lender owes $275 million to FTX, the company’s second-largest creditor due to the July deal.
"This action follows the shocking events surrounding FTX and associated corporate entities ("FTX") and the difficult but necessary decision we made as a result to pause most activities on our platform," a blog post said on Monday.
"Since the pause, our team has explored every strategic option and alternative available to us, and has remained laser-focused on our primary objective of doing the best we can for our clients. These Chapter 11 cases will enable BlockFi to stabilize the business and provide BlockFi with the opportunity to consummate a reorganization plan that maximizes value for all stakeholders, including our valued clients."
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BlockFi currently anticipates that client claims will be addressed through the Chapter 11 process.
Pachal emphasized his concern that BlockFi is one of many crypto companies which will face a collapse after the FTX debacle.
"My overall assessment is this will probably continue and that we're kind of in still in the middle of the game here and feels like it's going to get worse before it gets better," he said.
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"This contagion will just continue. And we're all kind of waiting for the next domino to fall."
FOX Business' Ernie Sadashige contributed to this report.