Avoiding Crypto Bankruptcies
If you’re concerned about the escalating number of crypto bankruptcies, you’re not alone. The financial crisis is causing a number of companies to go under, including Voyager Digital, Celsius Network, and Three Arrows Capital. However, there are ways to avoid becoming a victim. The first step is to understand how cryptocurrency works and what the risks are. Then, you can start making informed decisions about whether you should invest in a cryptocurrency company.
As a result of its bankruptcies, Voyager Digital plans to auction off the company’s remaining assets. The auction will be held on September 13 at Moelis & Co in Manhattan. A hearing will follow on September 29 to approve the auction results. Voyager will then return the cash to customers, which is a small percentage of its overall investor assets.
Alameda Research, the quant trading firm founded by billionaire Sam Bankman-Fried, is listed as Voyager’s largest creditor. The bank holds unsecured loans of $75 million and has provided credit lines to Voyager Digital. While Bankman-Fried has not been involved in the company’s financial crisis, he is a lender of last resort for struggling companies in the industry.
Three Arrows Capital, another cryptocurrency company, is in trouble too. They failed to make payments on a loan that Voyager gave them. The loan involved 15,250 bitcoin and $350 million in USDC. The company filed for Chapter 15 bankruptcy in the Southern District of New York to protect their assets.
In May, Celsius Network had 1.7 million users and managed $11.8 billion in digital assets. Users could earn up to 18% returns on their crypto holdings with the company’s staking services. But the cryptocurrency crash hit the company’s finances. In response, the company lent $75 million to Three Arrow Capital. However, the firm collapsed, and investors pulled their money.
Now, the company is on the brink of bankruptcy. Its CEO, Alex Mashinsky, has been battling to revive the company, and recently held a meeting with employees to discuss a new restructuring scheme. In the meeting, Mashinsky introduced a plan that would require the storage of crypto while charging fees on some transactions. This was in contrast to Celsius’ previous ‘no fee’ branding.
FTX is likely to bid for the troubled lending platform. The company recently outbid Binance to acquire Voyager Digital. Under Bankman-Fried’s leadership, FTX has been aggressively acquiring distressed assets since the May market meltdown. Another executive resigned on September 27, and the crypto giant FTX has stepped in to purchase the company’s assets.
Three Arrows Capital
A recent wave of bankruptcies has thrown the crypto hedge fund industry into a state of turmoil. Three Arrows Capital, based in Singapore, managed more than $10 billion in assets before declaring insolvency. Founders Su Zhu and Kyle Davies are facing over $3 billion in creditors’ claims, and they have filed for bankruptcy in the British Virgin Islands. Their collapse was not a market-driven event, but rather an unfortunate self-inflicted crisis.
While a court-appointed liquidator ordered liquidation of Three Arrows Capital, it has been difficult for creditors to contact the fund’s founders. Founders Kyle Davies and Su Zhu have refused to cooperate with the liquidators’ investigation into their company’s assets. As a result, they have turned over only a “pro forma” list of corporate assets.