Crypto lender BlockFi is preparing a potential bankruptcy filing after pausing withdrawals of customer deposits citing its “significant exposure” to bankrupt crypto exchange FTX.

Last week, BlockFi halted withdrawals and activity on its platform, mentioning it couldn’t operate on business as usual given the uncertainty about FTX. The firm is now planning to lay off some of its employees while preparing for a possible Chapter 11 bankruptcy protection itself, according to a report in The Wall Street Journal.

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BlockFi accepted a $400 million line of credit in July this year. It also involved an option to buy the company for up to $240 million.

Earlier the lender denied having most of its assets at FTX. However, later it acknowledged having an undrawn line of credit and obligations with FTX. It does have “significant exposure to FTX and associated corporate entities,” BlockFi said in a blog post.

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The company continues to hold withdrawals from customer accounts and asked clients not to submit any deposits to BlockFi wallet or interest accounts, as mentioned in the blog post.

BlockFi is in touch with external expert advisors who are helping it with the future action plan. The company said, “Haynes and Boone continue to serve as our primary outside counsel, and BRG has been engaged as our financial advisor.”

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Haynes and Boone is an international corporate law firm, headquartered in Dallas, Texas, United States. 

Berkeley Research Group (BRG) is a global consulting firm leading in areas of disputes, investigations, corporate finance, and performance improvement advisory. It is often retained for bankruptcy proceedings.

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Crypto investors are already fearful after FTX reported a critical liquidity crisis in its bankruptcy filings stating to have over 1 million creditors. FTX founder Sam Bankman-Fried (SBF) and employees were reportedly spent calling investors to raise financing for a shortfall of up to $8 billion, but have so far been in vain. If BlockFi now heads into bankruptcy, the consequences could be even more devastating.