A recent report regarding a new bankruptcy filing shows that the defunct cryptocurrency lender BlockFi has $227 million in uninsured funds assigned to a money market mutual fund (MMMF) sponsored by the insolvent Silicon Valley Bank (SVB).
The California Department of Financial Protection and Innovation shut down SVB, a crucial business partner for venture-backed enterprises, on March 10.
The action worsens the recent Silvergate woes, which has seen crypto prices crash ever since the crypto-friendly bank’s financial difficulties were made public at the start of March.
According to a March 10 filing in the ongoing BlockFi bankruptcy action, the company has $227 million invested in an MMMF provided by SVB.
BlockFi’s Investment is Not Insured by the FDIC
Notably, the complaint cites a balance summary from SVB, which claims that BlockFi’s investment is “not guaranteed by the bank,” not insured by the Federal Deposit Insurance Corporation (FDIC), and not covered by any other federal government agency.
Federal deposit insurance provided by the FDIC covers deposits up to $250,000 per depositor, but not the full range of money market funds.
Furthermore, despite SVB’s difficulties, Investors receive fund shares in exchange for their capital, therefore BlockFi’s funds may not be at risk.
Nonetheless, USD Coin appears to be one company that will be negatively affected by the SVB collapse and the Silvergate bankruptcy.
The most recent audit report from the firm reveals that SVB, Silvergate Bank, and Bank of New York Mellon had $8.6 billion, or around 20% of its reserves, as of January 31.
Uncertainty surrounds the precise amount held in SVB and Silvergate, although Circle announced on March 10 through Twitter that the company and USDC would “operate normally” while they awaited “clarity on how the FDIC receivership of SVB will impact its depositors.”
Recall that BlockFi previously stopped allowing withdrawals on its platform after FTX’s liquidity crisis, and eventually applied for bankruptcy protection in November last year at the United States Bankruptcy Court for the District of New Jersey.
