What took place: The defunct crypto lending company BlockFi is taking steps to return customer funds after declaring bankruptcy at the end of November. As per an email it sent clients, the organization documented a movement with the U.S. Insolvency Court requesting power to allow BlockFi Wallet to account holders to pull out their resources. For holders of non-U.S. wallets, the company intends to make the same move in Bermuda’s Supreme Court.
The email that was sent to the users stated, “While filing this motion is an initial step, we will continue to work toward solutions that maximize value for all clients and other stakeholders and will share updates as soon as practicable.”
This isn’t all. Before BlockFi froze their accounts, some users attempted to withdraw funds. These assets are currently in limbo and are not reflected in users’ balances because they did not leave the platform. BlockFi intends to correct this. BlockFi could update users’ balances if the court accepts its application, making it easier for the cryptocurrency platform to honor future withdrawals.
What of it: The lack of investor protection is one of the biggest obstacles for crypto investors. The Federal Deposit Insurance Corporation (FDIC) insures bank deposits, but not many crypto assets. Funds held in U.S. dollars, not crypto assets, are covered by FDIC insurance, according to some prominent cryptocurrency exchanges. In the various bankruptcy cases, it is unclear how individuals’ deposited funds on crypto platforms will be handled.
BlockFi is making it abundantly clear that the funds that are stored in its BlockFi wallets are the property of its customers and should not be entangled in any bankruptcy proceedings. BlockFi stands out from other platforms that have also declared bankruptcy this year, like Celsius and FTX, thanks to this move. Cryptocurrencies held in BlockFi wallets could be distributed to users directly if the court approves it.
What next: If you’re a BlockFi client, focus on messages you get from the organization, and don’t overreact if you see changes to your record balance. Keep in mind that only funds held in BlockFi wallets are affected by the change. BlockFi Interest Account funds are exempt from the motion. Important dates to watch are:
Jan. 9, 2023: The motion will be heard in U.S. Bankruptcy Court on January 13, 2023: Hearing at the Supreme Court of Bermuda If you are a crypto investor and hold funds on any exchange, you should not assume that your assets are safe. Learning how non-custodial cryptocurrency wallets operate is worthwhile. While they won’t work for everyone, they do give you complete control over your digital assets. Importantly, funds won’t be affected by future failures of cryptocurrency exchanges because of non-custodial crypto wallets.
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