Jack Prince: BlockFi Collapse Caused by Regulatory Shock, Customer Exodus and FTX Fallout

BlockFi's former chief executive identified unexpected regulatory measures, a large-scale customer exodus after competitors' bankruptcy, and failed FTX acquisition attempts as key causes of the company's collapse. He revealed that Alameda's financial statements sent to lenders were fraudulent during court proceedings.

In an interview with Anthony Pompliano on September 14 (local time), Jack Prince, Galaxy One Managing Director, explained three main triggers: regulatory actions, Celsius and Voyager bankruptcies, and the FTX situation. Prince noted that regulatory measures in summer 2021 came as a complete surprise, forcing a temporary halt to new U.S. customer sign-ups. A $100 million fine was imposed, far exceeding company expectations.

Prince clarified BlockFi wasn't trying to avoid regulation but had obtained both state and federal licenses, working toward regulatory structures for crypto interest accounts. However, SEC and state securities agency actions blocked this path. Regulatory measures directly impacted fundraising; a $500 million funding round saw half the funds already transferred before regulations halted execution, causing some investors to withdraw and significantly reducing the round's size.

The second major shock came after Celsius and Voyager's bankruptcy in 2022, leading to massive customer fund withdrawals. Prince stated BlockFi's peak assets under management were slightly over $14 billion, dropping to about $12 billion by May 2022. Within the first two weeks after Celsius and Voyager collapsed, assets fell from $12 billion to $2 billion—a loss of approximately 85%—though all withdrawal requests were processed.

Prince noted that prior to May 2022, BlockFi had transitioned from growth-focused to profit-driven operations, achieving its first multi-month profitability. However, after the customer exodus, revenue declined and the company returned to losses, necessitating capital raising within six to 18 months. This led to concurrent efforts in fundraising and acquisition talks, with FTX being considered BlockFi's best option.

Prince explained that FTX was rapidly growing as a threat to Binance at the time, making a merger necessary for BlockFi to complete SEC compliance and interest account registration. 'We had a money-printing machine but how could we run out of cash?' he said, admitting no prior expectation of FTX's financial issues. He learned of FTX's collapse while on parental leave through team communications.

Prince also testified as a victim witness in Sam Bankman-Fried's trial, revealing that Alameda sent fraudulent financial statements to lenders including BlockFi. Messages between Sam and Caroline showed multiple drafts of financial reports, with Sam rejecting some as 'not looking good' before selecting what Prince called 'the most significant lie.' BlockFi remained independent until FTX's formal acquisition, with FTX planning to exercise an option within a year.