The struggling market for digital assets has seen another domino fall with the bankruptcy filing of a US cryptocurrency broker and lender.
Voyager Digital said “volatility and contagion” in the cryptocurrency markets forced it into a Chapter 11 filing, which protects a business from creditors while it considers strategic alternatives. Voyager Digital had suspended all withdrawals and trading last week.
Since its $3 trillion (£2.5 trillion) peak in November of last year, the cryptocurrency market has declined to less than $1 trillion, and the decline accelerated in May when Terra, a cryptocurrency valued at several billion dollars, crashed.
Three Arrows Capital, a crypto-focused hedge fund that owed money to Voyager and was scheduled for liquidation last week, ran into problems as a result of the subsequent market crash.
Stephen Ehrlich, the chief executive of Voyager, stated that “the sustained volatility and contagion in the crypto markets over the past few months, as well as the default of Three Arrows Capital on a loan from the company’s subsidiary, Voyager Digital LLC, require us to take deliberate and decisive action now.”
Voyager, a New Jersey-based company, stated in its Chapter 11 bankruptcy filing on Tuesday that it had more than 100,000 creditors, assets worth between $1 billion and $10 billion, and liabilities of the same amount.
Voyager is a cryptocurrency company that provides services like broking, which involves locating the best prices for cryptocurrencies that customers want to buy or sell, as well as borrowing customers’ digital assets in exchange for yields of up to 12% and then lending them out.
Voyager’s problems are a result of a crypto credit crisis, according to Carol Alexander, professor of finance at the University of Sussex business school, but she argued that this is “not a bad thing at this stage.”
“Firms offering unsustainable yields have proliferated too rapidly during the most recent bitcoin bubble,” she said. “The majority of genuine proponents of the digital asset ecosystem welcome the shakedown we are witnessing right now.”
Alameda Research, a cryptocurrency trader, was revealed to be Voyager’s largest single creditor in a filing with the bankruptcy court serving the southern district of New York, with unsecured loans totaling $75 million.
Voyager announced last week that it had sent a notice of default to the Singapore-based cryptocurrency hedge fund Three Arrows Capital for failing to make required repayments on a loan of 15,250 bitcoins, or roughly $324 million, and $350 million worth of USDC, a stablecoin. The hedge fund filed for bankruptcy under Chapter 15 later that week, which enables foreign debtors to protect US assets from creditors.
The term “cryptocurrency” refers to a collection of digital assets that have the same fundamental design as bitcoin: a publicly accessible “blockchain” that keeps ownership records decentralized from any central authority. The most valuable digital asset, worth more than a third of the $900 billion cryptocurrency market, is bitcoin, but since November, its value has fallen from almost $69,000 to $20,000.
Supporters of the industry claim that it is a wise investment because it has low fees and is unrelated to governments, unlike traditional currencies. Its critics assert that because there is no explicit government backing or regulatory oversight, it is prone to fraud and price swings.
