Bankrupt crypto-lending platform BlockFi faces potential loss of $227M in unsecured funds at Silicon Valley Bank – what’s going on?
Bankrupt crypto lender BlockFi has $227 million in unsecured funds in an account maintained by failed lender Silicon Valley Bank.
According to a March 10 filing by the Department of Justice, BlockFi has $227 million parked in a money market fund, not insured by the Federal Deposit Insurance Corporation (FDIC), at the now-collapsed Silicon Valley Bank.
The Justice Department said Silicon Valley Bank documents show the BlockFi account is not considered a deposit, is not insured by the FDIC, and thus could lose value. The federal watchdog claimed BlockFi ignored warnings earlier this month about the dangers of the uninsured account.
The revelation comes on the same day that federal regulators seized the bank after its spectacular collapse. Silicon Valley Bank had been one of the largest providers of financial services to technology startups, including crypto companies.
Meanwhile, insured depositors are expected to access their funds by Monday morning. Depositors with funds in excess of insurance caps will receive receipts for their uninsured balances, meaning businesses with large deposits stuck in the bank are unlikely to get their money out anytime soon.
Some in the crypto community have noted that BlockFi’s funds may not be at direct risk despite SVB’s problems. Some crypto Twitter users argued that BlockFi’s stock value will depend on what’s in the money market funds (MMF), not what happens to Silicon Valley Bank.
“Is this a regular money market association, not affiliated with SVB, custodian with SVB or its securities affiliates? The SVB beneficiary should not affect it,” said Twitter user @mattwwaters. “MMF is not FDIC insured, but the value of the shares will depend on what is in MMF, not what happens to SVB.”
Several crypto companies had exposure to SVB
Apart from BlockFi, many other crypto companies have also disclosed their exposure to the bank. First, Circle, the issuer of the world’s second-largest stablecoin USDC, has revealed that it held an undisclosed portion of its $9.8 billion in cash reserves with the failed Silicon Valley Bank.
The company said in a statement on Friday that SVB was one of six banks relied on to manage USDC’s cash reserves, but maintains that USDC will be able to continue operating normally. Still, the stablecoin has distanced itself from the $1 benchmark amid a wave of withdrawals.
Furthermore, crypto-focused venture capital firm Pantera may also have an unknown exposure to SVB’s collapse. As recently as last month, the firm counted the failed bank among just three managers of its private funds, according to a Feb. 3 SEC filing.
The Avalanche Foundation, which backs the Avalanche blockchain, Yuga Labs, the entity behind the Bored Ape Yacht Club NFT project and some other blue-chip collections, as well as the Web3 company Proof are some other crypto companies hard hit by the recent collapse of Silicon Valley Bank .
BlockFi became the first company to file for bankruptcy in the wake of the collapse of FTX. The crypto lender has more than 100,000 creditors and owes between $1 billion and $10 billion to those creditors.
