Voyager Digital has filed for US bankruptcy protection, the latest casualty of the sharp downturn in cryptocurrency prices that has triggered a crisis in the digital assets market.
The Toronto-listed broker and lender filed for Chapter 11 bankruptcy late on Tuesday in federal court in New York after suffering losses of more than $650mn on a loan to Three Arrows Capital, the failed crypto investor.
The collapse of Voyager came less than a week after it suspended trading and prevented customers from withdrawing funds.
Singapore-based Three Arrows, which was known for its aggressive bets that crypto prices would rise, had borrowed heavily from big industry players to amp up its market wagers, leaving it severely underwater as the prices of digital tokens fell. Prices of leading cryptocurrencies have tumbled about 70 per cent from their peak late last year.
The company fell into bankruptcy in spite of a rescue loan last month from Alameda Research, the trading firm controlled by FTX founder Sam Bankman-Fried. Voyager had drawn down the maximum $75mn permitted in a single 30-day period, making Alameda its largest unsecured creditor, the bankruptcy filings showed.
Voyager’s collapse will be more widely felt since the company had a large customer base among do-it-yourself crypto investors. At the end of March, its liabilities amounted to $5.7bn. The Chapter 11 petition seeks to provide Voyager with protection from legal claims while it pursues a restructuring.
The company said in the filing that it has more than 100,000 creditors and liabilities of between $1bn and $10bn. It owes nearly $1mn to Google, the filings showed, with the rest of its largest unsecured creditors being customers.
Voyager said it had $110mn of cash and “owned crypto assets” on hand, plus $1.3bn in crypto assets on its platform.
Subject to court approval, it hopes to repay customers with “a combination” of crypto assets, proceeds from Three Arrows’ bankruptcy, shares in the company when it re-emerges from insolvency and “Voyager tokens”.
The company said it also holds $350mn of customers’ cash in US dollar deposits in an omnibus account at Metropolitan Commercial Bank in New York. Clients would be paid back after “a reconciliation and fraud prevention process,” it said.
Metropolitan said the Voyager customer funds it held are protected by US federal deposit insurance, for up to $250,000 per depositor for each account ownership category. The account does not hold cryptocurrency or any other asset, it added. Voyager said in the past that FDIC would reimburse “USD funds” in the event of “the company’s . . . failure”.
Stephen Ehrlich, chief executive of Voyager, said in the wake of the filing that, “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.”
The downturn has also struck New Jersey-based lender Celsius, which has frozen customer withdrawals, and rival BlockFi, which also lent money to Three Arrows and secured a rescue loan from FTX which gives the exchange the right to buy the company.
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