Crypto broker Voyager Digital Ltd filed for Chapter 11 bankruptcy protection just weeks after getting a lifeline from billionaire Sam Bankman-Fried’s Alameda Research, citing market volatility and the collapse of a hedge fund it had lent money to.
The firm and two affiliates, Voyager Digital LLC and Voyager Digital Holdings, took the step in the Southern District of New York, a filing showed on Wednesday.
Voyager, which secured a credit line worth about $485 million from Alameda in mid-June, is among a growing list of casualties of a market collapse that’s seen about $2 trillion wiped off the value of cryptocurrencies. Its filing listed Alameda as the biggest single creditor, with a $75 million unsecured loan.
“We strongly believe in the future of the industry but the prolonged volatility in the crypto markets, and the default of Three Arrows Capital, require us to take this decisive action,” Chief Executive Officer Stephen Ehrlich said on Twitter, referring to the crypto hedge fund that defaulted on a $675 million loan from Voyager.
Voyager listed assets and liabilities of between $1 billion and $10 billion, respectively, in its Chapter 11 filing.
The company has about $1.3 billion of crypto assets on its platform and $350 million in a so-called For Benefit of Customers account at Metropolitan Commercial Bank, in addition to its claims against Three Arrows, according to a separate statement. It also has more than $110 million in cash and “owned crypto assets” on hand.
Last month, Voyager issued a notice of default to Three Arrows on the loan. It is “actively” pursuing recovery from the hedge fund, including through the court-ordered liquidation process in the British Virgin Islands, Ehrlich tweeted.
Besides trading and lending, Voyager also offers staking -- a way of earning rewards for holding certain cryptocurrencies -- and yield products. Firms in that space including Celsius Network, Babel Finance and Vauld have suspended withdrawals since early June as liquidity dried up. Singapore-based Vauld is in discussions to be acquired by rival Nexo, the companies said on Tuesday.
“Voyager’s bankruptcy filing basically confirms that the crypto lender did use its customers’ funds as a source of dollar liquidity and lent them to entities like 3AC as a leveraged trade of sorts while it would constantly borrow money itself to meet current withdrawal requests,” said Mikkel Morch, executive director at crypto hedge fund ARK36, using the acronym for Three Arrows Capital.
Stock Implosion
Trading, deposits, withdrawals and loyalty rewards on the Voyager platform remain temporarily suspended, Ehrlich said. Clients who have crypto in their accounts will receive a mix of their digital assets, proceeds from the Three Arrows recovery, shares in a reorganized Voyager and Voyager tokens.
The Voyager coin has tumbled 98% from its peak, according to CoinGecko.
Customers with US dollars in their accounts “will receive access to those funds after a reconciliation and fraud prevention process is completed with Metropolitan Commercial Bank,” Ehrlich said in the tweet.
Shares in Voyager plunged 42% on Monday, slashing its market value to C$66 million ($51 million). The company was valued at C$2.7 billion at the start of the year.
Rapid Unwinding
Tighter monetary policy from central banks seeking to stem a global surge in inflation has weighted heavily on digital tokens, one of last year’s frothiest asset classes. The rout that started in late 2021 gathered pace with the collapse of the TerraUSD stablecoin in May, then worsened further as Bitcoin suffered its biggest-ever monthly drop in June.
With rapid unwinding of leverage blowing up companies across the cryptosphere, Bankman-Fried emerged as a lender of last resort, providing credit to Voyager and striking a deal to inject capital into BlockFi Inc. Bankman-Fried, the co-founder of crypto exchange FTX US, is also open to exploring acquisitions of battered crypto miners, he said in an interview last week.
“The big question is can FTX backstop everything, they’re becoming a central bank-like lender of last resort,” said Simon Taylor, head of strategy and content at crypto fraud prevention startup Sardine.
Bitcoin was down 1.2% at $20,196 on Wednesday morning in Europe, taking this year’s decline to 57%.