Why Did Voyager Digital File for Bankruptcy?
Voyager Digital, a crypto lender, filed for bankruptcy on Tuesday. In doing so, it became the second high-profile crypto firm to do so in recent days. The Toronto-based company filed for Chapter 11 bankruptcy on Tuesday. It is estimated to have had more than 100,000 creditors and somewhere between $1 billion and $10 billion in assets. Voyager also posted the same range on its commitments. The firm trusts that funds will be accessible to unsecured creditors.
It is worth noting that crypto companies, especially lenders, have faced solvency problems in recent weeks. Consequently, several stopped users from withdrawing funds. Celsius started this trend last month. And in the middle of June, he announced that he would stop the withdrawal. CoinFLEX, CoinLoan, and Voyager have all announced restrictions or outright suspensions on withdrawals in recent days.
The firm joins Three Arrows in filing for bankruptcy. However, Three Arrows listed a Chapter 15 petition. This is related to the liquidation carried out by the British Virgin Islands Court. Voyager’s CEO said restructuring the company was the best way to protect the firm’s assets.
This was followed by an announcement on Twitter that users who have crypto in their account(s) will receive a pool of crypto in their account(s) in return for proceeds from the 3AC restructuring, common stock in the newly reorganized company, and Voyager tokens.
Voyager and Crypto
The filing comes as industry watchers criticize Voyager’s business practices; In particular, how the Canadian firm said in its marketing materials that investors’ deposits were protected by insurance from the Federal Deposit Insurance Corporation. Although FDIC insurance will certainly protect cash deposits made by a bank up to $250,000; This will not cover cash that is converted to stablecoins. Reviewers found Voyager’s marketing misleading about its handling of deposits. Moreover, FDIC insurance kicks in in the event of a bank failure. And in this case, Voyager Bank was owned by Metropolitan Commercial Bank. Therefore, there is no protection in the event Voyager fails.
Voyager’s equity holders are Alameda Research Ventures and Alameda Ventures, two companies related to the founder of crypto exchange FTX. It has extended credit lines or otherwise bailed out other crypto companies.
Voyager also owes Google nearly $1 million. Shares in the firm, which has already been hit by the crypto market selloff, were trading at 27 cents at the market close on Tuesday. This gave the company a market cap of 65 million Canadian dollars. That’s smaller than the $75 million in unsecured loans made by Alameda Research. Shares were trading above $20 last November. However, it fell below the dollar last month. Voyager said in its filing that it had $110 million in cash. $350 million in cash at Metropolitan; $1.3 billion in crypto. Also owed $650 million from the Three Arrows.
The crypto market is agonizing over a harsh liquidity crisis. Platforms are struggling to meet the flow of withdrawals from customers amid a sharp drop in digital currency prices. The decline of cryptocurrency began with a broad drop in risky assets; As the Federal Reserve began monetary tightening, the pace picked up after the collapse of Terra, the so-called stablecoin venture.
Bitcoin had its worst month in June. The currency fell by 38%. Investors are bracing for a much longer slump in digital currencies, known as the “crypto winter.” Alameda Research last month extended Voyager’s credit line for $500 million in cash. Also with cryptocurrency, in a vain attempt to subdue the company.