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Crypto broker Voyager Digital files for bankruptcy as industry falters

Voyager sustained heavy losses from its exposure to the crypto hedge fund Three Arrows Capital, which went into liquidation last week after defaulting on several loans

Crypto brokerage Voyager Digital filed for Chapter 11 bankruptcy protection, in the latest episode of the industry's financial turmoil. (Justin Sullivan/Getty Images)
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Crypto broker Voyager Digital filed for Chapter 11 bankruptcy protection, becoming the latest casualty of the financial turmoil that has pummeled the world of cryptocurrency as token values have plunged and economic conditions soured for riskier assets.

The bankruptcy filing announced Wednesday came just days after Voyager suspended trading, deposits, withdrawals and loyalty rewards for its customers, and on the heels of the crash of Three Arrows Capital. Last month, Voyager issued a notice of default to the crypto-focused hedge fund for failing to make the required payments on a loan worth more than $650 million; Three Arrows Capital has since collapsed into liquidation, leaving Voyager scrambling to collect what is owed.

“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,” Voyager chief executive Stephen Ehrlich said in a tweet Wednesday.

Three Arrows Capital falls into liquidation after crypto crash

Under Voyager’s proposed bankruptcy plan, customers who had cryptocurrencies in their accounts would receive a combination of crypto, proceeds from the funds recovered from Three Arrows, shares in the newly reorganized company, and Voyager tokens, the company said. Customers with cash deposits in their accounts would receive access to those funds after the company and Metropolitan Commercial Bank completed a reconciliation and fraud prevention process, Voyager said.

Voyager filed the reorganization petition in U.S. Bankruptcy Court of the Southern District of New York on Tuesday.

The filing shows that Voyager has more than 100,000 creditors, and lists assets and liabilities of between $1 billion and $10 billion.

The company said it has roughly $1.3 billion of crypto assets on its platform and claims more than $110 million of cash and owned crypto assets on hand, which would help it maintain daily operations during the bankruptcy process. An additional $350 million of cash held on behalf of customers sits in an account with Metropolitan Commercial Bank, the company said in a statement.

Voyager’s financial struggles highlight the crypto industry’s high level of interconnectedness. As crypto-related firms borrow from and invest in one another, the risks to investors are amplified since failures can cascade and spread.

The bankruptcy marks another episode in crypto’s rocky year. Although legacy financial markets also have suffered from an array of economic challenges — including soaring inflation, supply-chain shocks from the pandemic and the war in Ukraine, as well as the Fed’s aggressive monetary tightening — cryptocurrencies have been hit especially hard as investors flee to safer assets and prices falter.

This week, the crypto lender Vauld halted all withdrawals in another instance of the sector’s broader meltdown, which included the cratering of TerraUSD’s stablecoin and a freeze in withdrawals by crypto bank Celsius.

Voyager first revealed its financial troubles in late June after reports circulated of Three Arrows’ failure to meet the demands from lenders to show extra funds when its crypto bets blew up. In a widely covered announcement, Voyager said it had issued a notice of default to Three Arrows and intended to recover the funds. The loan took the form of 15,250 bitcoin and $350 million of the stablecoin USDC, a digital token whose value is pegged to the dollar. The value of the borrowed bitcoin in Wednesday’s prices amounts to more than $300 million.

Crypto lender Vauld offered lifeline a day after suspending withdrawals

Soon after, however, a court in the British Virgin Islands ordered Three Arrows into liquidation following its failure to repay creditors as the value of bitcoin and other cryptocurrencies has crashed. And last week, the global advisory firm Teneo created a website for potential creditors of Three Arrows Capital to submit claims and receive more information about the insolvency.

Voyager said it is pursuing all available remedies for recovery of funds, including through the court-supervised processes in the British Virgin Islands and New York.