Australian institutional investors have narrowly avoided being caught in the liquidity crisis engulfing US crypto lender BlockFills, after a planned high-yield lending fund targeting local capital was quietly shelved just months before the platform froze client assets.
BlockFills, a Chicago-based crypto provider with over 2000 institutional clients, suspended all customer withdrawals last week citing “knock-on impacts” from the recent downturn in digital asset prices.
The freeze left hedge funds and asset managers globally unable to access their capital, reviving fears of the contagion that toppled firms like cryptocurrency platforms FTX and Celsius in a previous market slump in 2022.
BlockFills, which facilitated over $US61 billion ($94 billion) in trading in the last year alone, has not disclosed how much capital is affected, and withdrawals remain suspended.
This masthead can reveal that a major Australian conduit to BlockFills – the “Digital Asset Collateralized Lending Fund” – never went live, effectively saving local wholesale investors from millions in potential exposure.
The fund was pitched as a high-yield credit vehicle, designed to attract capital from Australian wholesale investors and family offices looking for returns above traditional markets.
Under the structure, investor capital would be lent out to borrowers who posted digital assets like Bitcoin as security, with BlockFills managing the liquidation technology.
Bitcoin has plummeted more than 45 per cent from its October peak of $US126,000, shedding 20 per cent in a single week alone as the appointment of hawkish Federal Reserve chair Kevin Warsh sent investors fleeing. The rout has shattered lingering hopes that the cryptocurrency would serve as a “digital gold” safe haven or inflation hedge, with the asset instead behaving like a high-risk tech stock – crashing the moment liquidity tightened and central bank policy shifted.
The fund was announced with fanfare in May 2025 as a strategic partnership between BlockFills and Balmoral Partners Investment Management Ltd, an Abu Dhabi-based asset manager that has a Sydney office.
“The crypto lending market is gearing up for a dynamic new chapter, powered by enhanced risk frameworks, surging institutional interest and much-needed regulatory clarity,” Balmoral Partners Investment Management chief executive David Fallon said at the time.
The fund never launched, however, and was quietly mothballed. Had the fund launched as scheduled, Australian client assets would likely now be trapped on the frozen platform.
There is no suggestion of wrongdoing by any of the parties.
A spokeswoman for BlockFills confirmed to this masthead that despite the public announcement, the fund “actually never officially launched and therefore does not hold any assets”. Balmoral Partners Investment Management did not respond to requests for comment.
While the firm lists a “Sydney office” on its website as part of its global presence, regulatory searches indicate the Abu Dhabi-based entity never completed the necessary licensing to operate a registered scheme in this jurisdiction.
The failure to secure a launch – whether due to regulatory hurdles or commercial hesitation – has proven prescient, insulating local capital from the platform’s collapse.
While the shelved fund protected specific local investors, the freeze at BlockFills has sent jitters through the broader market.
Sydel Sierra, founder of crypto education platform Digital Wealth Group, described the freeze as a protective move to help keep the company alive, rather than a death knell.
“BlockFills’ decision to halt trading is a flash point in the crypto market at the moment … There’s no point denying that,” she said.
“It’s a protectionist move by the platform – and not the first time this has happened – aimed at shoring up liquidity for investors in the future.
“Bear markets don’t last forever, any more or less than bull runs.”
Mark Hiriart, head of sales at Australian digital asset firm Zerocap, said that while panic hasn’t explicitly materialised yet, institutional memory is short.
“The mantra is often ‘act first, ask questions later,’ because where there’s smoke, there could be fire,” Hiriart said, noting that the market is still bruising from the “10/10″ event – a historic liquidation cascade on October 10, 2025 that wiped out over $19 billion, due to a chain reaction of forced selling. It was the industry’s ‘Black Monday,’ and firms like BlockFills are still dealing with the hidden financial wounds from that day.
“There have been persistent rumours of certain firms grappling with leverage overhang and liquidity strains,” Hiriart said. “BlockFills’ pause looks like a protective step amid the correction, not a repeat of Terra/Luna’s interconnected implosion.”
Paul Quickenden, country manager for Australian crypto exchange Swyftx said that the BlockFills freeze was a stark reminder for institutions to check who actually holds their coins.
“A single lender/liquidity provider pausing withdrawals is a counterparty event, not a Bitcoin protocol event,” Quickenden said. “The right response is tightening counterparty discipline”.
For everyday investors, the fallout appears contained. Steven Penson, analyst at 1UpWeb3, argued that the crisis is “almost entirely institutional” and unlikely to spill over into the retail market.
“Unlike FTX or the Luna/UST collapse … BlockFills’ exposure amongst everyday investors is very limited,” Penson said.
“Following the FTX collapse investors learnt the hard way not to keep money on exchanges … most capital has moved off exchanges and third parties to self-custody and ETFs over the last few years.”
Penson predicts Bitcoin will continue to consolidate between US$58,000 ($81,000) and US$74,000 ($104,000) in the coming months as the market absorbs the shock.
A BlockFills spokeswoman said the company is “working tirelessly” to restore normal operations and described the withdrawal freeze as temporary, though no timeline has been given for when clients can access their funds.
The firm named an interim chief executive, Joe Perry, at the end of last year.
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