In early November, cryptocurrency exchange FTX imploded after it was revealed that the company's now-notorious founder and CEO, Sam Bankman-Fried, had allegedly been using money from the exchange for his own purposes. The crypto market has largely recovered from the damage done by FTX's disaster, but companies like BlockFi are too tightly connected to FTX to survive the fallout.

On Monday, November 28, BlockFi filed for Chapter 11 bankruptcy protection in its home state of New Jersey. However, the crypto lender's problem started long before the actions of Bankman-Fried came to light.

First, in February, BlockFi ran afoul of the Securities and Exchange Commission (SEC) and ended up signing a $100 million settlement. The SEC accused BlockFi of failing to register as an investment company, failing to register loans as securities, and making misleading statements about its lending and investment activities.

Soon after, economic issues early in the year led investors to question the reliability of crypto. That uncertainty soon built into full-blown panic, leading to 2022's so-called "crypto winter". By the end of July, two of BlockFi's rivals, Voyager Cigital and Celsius Network, had both filed for bankruptcy due to the downturn.

While BlockFi weathered the storm, it did so at a cost: FTX's involvement.

In June, BlockFi went to FTX for help staying afloat. Along with giving FTX the option to purchase BlockFi outright, the deal also established a $400 million line of credit for BlockFi from FTX. At the time, FTX was considered a reliable exchange, and BlockFi's CEO, Zac Prince, said the partnership would give his company "access to capital that further bolsters our balance sheet."

Thanks to its ties to the company, FTX's breakdown and subsequent bankruptcy filing were a massive blow for BlockFi. Within a few days of the collapse, BlockFi posted an update telling clients that it would be pausing all deposit withdrawals.

"The rumors that a majority of BlockFi assets are custodied at FTX are false. That said, we do have significant exposure to FTX," the announcement reads. "While we will continue to work on recovering all obligations owed to BlockFi, we expect that the recovery of the obligations owed to us by FTX will be delayed as FTX works through the bankruptcy process."

"There are a number of scenarios that may be available to us, and we are doing the work now to determine the best path forward," the crypto lender continued.

According to its bankruptcy filing, BlockFi has roughly $257 million in cash on hand, $10 billion in assets and liabilities, and more than 100,000 creditors.