A US cryptocurrency broker and lender has filed for bankruptcy, becoming the latest domino to fall in the struggling digital asset market.
Voyager Digital had suspended all withdrawals and trades last week, but said “volatility and contagion” in the crypto markets had forced it to file for Chapter 11, which protects a company from creditors while she explores strategic alternatives.
The cryptocurrency market has crashed from its peak of $3 billion (£2.5 billion) last November to below $1 billion, with the decline accelerating in May when a crypto multi-billion dollar currency, Terra, has collapsed.
The ensuing market rout caused trouble at a crypto-focused hedge fund, Three Arrows Capital, which owed money to Voyager and which last week was on the verge of being liquidated.
“Prolonged volatility and contagion in the crypto markets over the past several months, and Three Arrows Capital’s default on a loan from the company’s subsidiary, Voyager Digital LLC, compels us to take deliberate and decisive action now. “Voyager Chief Executive Stephen Ehrlich said.
In its Chapter 11 bankruptcy filing on Tuesday, New Jersey-based Voyager estimated it had more than 100,000 creditors and between $1 billion and $10 billion in assets and liabilities of equal value. .
Voyager is a crypto company that offers brokerage services – finding the best prices for cryptocurrencies clients want to buy or sell – as well as borrowing digital assets from clients in exchange for returns of up to 12 %, then to lend them.
Carol Alexander, professor of finance at the University of Sussex’s business school, said Voyager’s troubles were part of a crypto credit crunch, but argued it was “not a bad thing. at this stage”.
“During the last bitcoin bubble, companies offering unsustainable returns proliferated too quickly.” she says. “The upheaval we are currently witnessing is welcomed by most genuine advocates of the digital asset ecosystem.”
A bankruptcy court filing for the Southern District of New York showed Alameda Research – a cryptocurrency trader – as Voyager’s biggest creditor, with unsecured loans of $75 million.
Voyager last week said it issued a notice of default to Singapore-based crypto hedge fund Three Arrows Capital for failing to make required payments on a loan of 15,250 bitcoin (about $324 million) and $350 million. USDC dollars, a stablecoin. Later that week, the hedge fund filed for Chapter 15 bankruptcy, which allows foreign debtors to protect U.S. assets from creditors.
Cryptocurrency is the term for a group of digital assets that share the same underlying structure as bitcoin: a publicly available “blockchain” that records ownership without having the control of any central authority. Bitcoin is the basic digital asset, worth more than a third of the $900 billion cryptocurrency market, but its value has fallen since November from nearly $69,000 to $20,000.
Proponents of the sector have said that it represents a good investment because, for example, it has low fees and, unlike conventional currencies, is not tied to governments. Its critics say a lack of regulatory oversight or implicit government support leaves it vulnerable to scams and wild price swings.