Voyager Digital has applied for US bankruptcy protection, becoming the newest victim of the crisis in the market for digital assets that has been caused by the precipitous decline in cryptocurrency prices.
After suffering losses of more than $650 million on a loan to the failed cryptocurrency investor Three Arrows Capital, the Toronto-listed broker and lender filed for Chapter 11 bankruptcy late on Tuesday in federal court in New York.
Less than a week after it stopped trading and forbade customers from withdrawing money, Voyager collapsed.
Three Arrows, a Singapore-based company known for placing aggressive bets on the rise of cryptocurrency prices, borrowed heavily from major industry players to increase its market bets, leaving it severely in debt as the price of digital tokens fell. Leading cryptocurrencies’ prices have fallen by about 70% since they peaked in late 2017.
FTX founder Sam Bankman-trading Fried’s company Alameda Research provided a rescue loan to Voyager last month, but the company still failed. According to the bankruptcy filings, Voyager had taken out the maximum $75 million in a single 30-day period, making Alameda its biggest unsecured creditor.
Given that the company had a sizable customer base among do-it-yourself cryptocurrency investors, the collapse of Voyager will be felt more widely. Liabilities for it totaled $5.7 billion as of the end of March. While Voyager pursues a restructuring, the Chapter 11 petition aims to give it protection from lawsuits.
According to the company’s filing, it has between $1 billion and $10 billion in liabilities and more than 100,000 creditors. According to the filings, it owes nearly $1 million to Google, with its other largest unsecured creditors being its clients.
Voyager claimed to have $1.3 billion in “owned crypto assets,” as well as $110 million in cash, on hand.
It intends to reimburse customers using “a combination” of crypto assets, cash from Three Arrows’ bankruptcy, stock in the company once it emerges from bankruptcy, and “Voyager tokens,” subject to court approval.
The business claimed to hold $350 million in US dollar deposits from customers in an omnibus account at Metropolitan Commercial Bank in New York. It stated that clients would receive their money back following “a reconciliation and fraud prevention process.”
Metropolitan claimed that US federal deposit insurance, up to a maximum of $250,000 per depositor for each account ownership category, protected the funds it held on behalf of Voyager customers. It was also stated that the account does not hold any cryptocurrency or other assets. In the past, Voyager has stated that in the event of “the company’s failure,” the FDIC would return “USD funds.”
Following the filing, Voyager’s CEO, Stephen Ehrlich, stated that while “we strongly believe in the future of the industry,” the prolonged volatility in the cryptocurrency markets and Three Arrows Capital’s default have forced us to take this decisive action.
Other lenders affected by the downturn include New Jersey-based lender Celsius, which has frozen customer withdrawals, and rival BlockFi, which also loaned money to Three Arrows and obtained a rescue loan from FTX, giving the exchange the right to acquire the company.