A US cryptocurrency broker and lender has filed for bankruptcy protection, becoming the latest domino to fall in the embattled digital asset market.
Voyager Digital had suspended all withdrawals and trading last week but said “volatility and contagion” in the crypto markets had forced it into a Chapter 11 filing, which shields a business from creditors while it explores strategic alternatives.
The cryptocurrency market has slumped since its $3tn (£2.5tn) peak last November to less than $1tn, with the decline accelerating in May when a multibillion dollar cryptocurrency, Terra, collapsed.
The ensuing market rout triggered difficulties at a crypto-focused hedge fund, Three Arrows Capital, which owed money to Voyager and last week was lined up for liquidation.
“The prolonged volatility and contagion in the crypto markets over the past few months, and the default of Three Arrows Capital on a loan from the company’s subsidiary, Voyager Digital LLC, require us to take deliberate and decisive action now,” Voyager’s chief executive, Stephen Ehrlich, said.
In its Chapter 11 bankruptcy filing on Tuesday, Voyager, based in New Jersey, estimated that it had more than 100,000 creditors and somewhere between $1bn and $10bn in assets, and liabilities worth the same value.
Voyager is a crypto firm that offers brokering services – finding the best prices for cryptocurrencies that customers want to buy or sell – as well as borrowing digital assets from customers in exchange for yields of up to 12%, and then lending them out.
Carol Alexander, professor of finance at the University of Sussex business school, said Voyager’s troubles were part of a crypto credit crisis, but argued that was “not a bad thing at this stage”.
“During the latest bitcoin bubble, firms offering unsustainable yields have proliferated too rapidly.” she said. “The shakedown we are witnessing now is welcomed by most authentic advocates of the digital asset ecosystem.”
A filing with the bankruptcy court serving the southern district of New York showed that Alameda Research – a cryptocurrency trader – was Voyager’s largest single creditor, with unsecured loans of $75m.
Last week, Voyager said it had issued a notice of default to the Singapore-based crypto hedge fund Three Arrows Capital for failing to make required payments on a loan of 15,250 bitcoins (approximately $324m) and $350m worth of USDC, a stablecoin. Later that week, the hedge fund filed for Chapter 15 bankruptcy, which allows foreign debtors to shield US 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 any central authority in control. Bitcoin is the cornerstone digital asset, worth more than a third of the $900bn cryptocurrency market, but its value has slumped since November from almost $69,000 to $20,000.
The sector’s supporters have said it represents a good investment because, for instance, it carries low fees and, unlike conventional currencies, is not tied to governments. Its detractors say a lack of regulatory oversight or implicit government support make it susceptible to scams and wild fluctuations in price.