BlockFi seeks to reopen withdrawals, but there’s a catch

Getting your Trinity Audio player ready...

BlockFi has filed a motion seeking to reopen withdrawals for its users amid bankruptcy proceedings. However, only a small minority who used Wallet Accounts will benefit, with the bulk of users who held interest-earning accounts still locked out.

The defunct lender filed a motion with the U.S. Bankruptcy Court for the District of New Jersey this week, asking for permission to refund a portion of its users.

Yesterday, we filed a motion requesting the authority to allow clients to withdraw digital assets that are held in their BlockFi Wallet accounts, as it is our belief that clients unambiguously own these assets.

— BlockFi (@BlockFi) December 20, 2022

In its motion, the company stated that its terms of use are clear that assets held in Wallet Accounts “shall at all times remain with you and shall not transfer to BlockFi.”

“The debtors have no legal or equitable interest in cryptocurrency that was present in the wallet accounts as of platform pause, and clients should be able to withdraw such assets from the platform if they choose,” the company added.

BlockFi is following in the steps of Celsius Network, yet another collapsed digital asset lender. Celsius has maintained that the company legally owns assets held in its interest-earning accounts. It has also filed for permission to hand back the assets held in the non-interest-earning accounts, although they represent a tiny fraction of the billions of dollars it held before it went bust.

In an email to its clients, BlockFi held onto its claims, stating, “It is our belief that clients unambiguously own the digital assets in their BlockFi Wallet Accounts…This motion does not impact withdrawals or transfers from BlockFi Interest Accounts, which remain paused at this time.”

WOW, @BlockFi has already filed a motion requesting client withdrawals for assets held in BlockFi Wallet Accounts. S/O to BlockFi for moving exponentially more quickly than @CelsiusNetwork in Ch 11. pic.twitter.com/JvtWzMklNA

— Tiffany Fong (@TiffanyFong_) December 20, 2022

Legal experts believe that the motion, whose hearing is on January 9, will likely be granted by the New Jersey court.

“It seems pretty likely that these particular BlockFi customers holding these specific Wallet Accounts will be entitled to withdrawals. The key here is the type of accounts, and the contractual terms governing the accounts,” David Samole, an attorney specializing in corporate bankruptcy, told one outlet.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.