Bankrupt crypto lender, BlockFi, is reportedly exposed to the recent capitulation of U.S.-based financial institution Silicon Valley Bank. BlockFi has $227 million in Silicon Valley’s uninsured funds, according to reports.
BlockFi’s bankruptcy filing shows that the crypto lender has $227 million buried in Silicon Valley Bank. The now-bankrupt lender deposited the funds in the bank’s money market mutual funds investment. The mutual funds’ holdings are not direct deposits to the bank or insured by the Federal Deposit Insurance Corporation (FDIC).
The California Department of Financial Protection (CDFP) closed Silicon Valley Bank on Friday. The financial institution struggled with funds to finance its operations recently and failed to raise fresh funds from investors. Numerous withdrawal requests spelled doom for the bank as it could not cope with customers’ demands for funds, which led to its closure.
BlockFi Likely to Lose Funds
According to the court filing, the money mutual funds investment does not comply with bankruptcy laws. The documents showed that BlockFi didn’t make any effort to safeguard these FDIC uninsured funds. The bank’s implosion might likely see BlockFi lose claims on its money.
BlockFi filed for bankruptcy in November after being exposed to FTX. The crypto lender had $355 million stuck in the bankrupt crypto exchange; it halted withdrawal immediately after the FTX collapse and, afterward, discontinued operation.
Silicon Valley summarized the account holding of BlockFi thus, “Money market mutual investments are: not a deposit, not FDIC insured, not insured by any federal government agency, not guaranteed by the bank, may lose value.”
Pantera, Avalanche, and Yuga Labs are other crypto firms trapped by the start-up-loving Silicon Valley Bank’s collapse.
Banks Continue Downhill Amidst Inflation
Silicon Valley Bank is the second U.S.-based financial institution that has collapsed this week. Silvergate’s liquidation came earlier in the week after it failed to survive inflation and debt.
Inflation has been a major factor in the banks’ demise. The Federal Reserve System’s (FED) efforts to curb ever-increasing inflation have proven ineffective as the Consumer Price Index (CPI) figures keep investors cautious. The FED hopes its persistent increase in basic points (bps) will help keep inflation at bay.
