Crypto broker Voyager files bankruptcy; what happens to customers?

Posted: 6 July 2022 6:42 pm

Stung by the collapse of Three Arrows and the crypto downturn, Voyager files Chapter 11. Withdrawals are on hold and, yes, some customers may well lose money.

The crypto meltdown has claimed another victim with brokerage Voyager Digital filing for Chapter 11 bankruptcy protection.

Voyager suffered a big hit from the collapse of crypto hedge fund Three Arrows Capital, which defaulted on massive loans from a variety of crypto industry firms – including $650 million borrowed from Voyager.

“Today we began a voluntary financial restructuring process to protect assets on the platform, maximize value for all stakeholders, especially customers, and emerge as a stronger company. Voyager will continue operating throughout,” Voyager chief Stephen Erlich tweeted.

What it means for customers isn’t clear, but it’s likely they will lose some of their assets.

What happens to customers’ money?

In a statement, Voyager said it has $1.3 billion in crypto assets on its platform and $350 million in cash at New York’s Metropolitan Commercial Bank. It claims between $1 billion and $10 billion in assets, and debts in the same range.

Voyager suspended trading, deposits and withdrawals on July 1, and that remains in force.

The company statement says customers with USD deposits will be able to access those funds after bank processing, but gives no timeline. Those with crypto will receive “a combination of the crypto in their account(s), proceeds from the 3AC recovery, common shares in the newly reorganized Company, and Voyager tokens.”

Bloomberg notes that the court filing acknowledges customers will be “impaired,” legalese for saying they may not get everything they had with Voyager back.

Voyager stock investors are likely also disappointed. The stock, listed in Toronto and traded over the counter in the US, is down 97% in 2022.

Crypto industry shakeout

The bankruptcy is one of the latest developments in what could turn out to be a major shakeout of the crypto sector. The deep decline in crypto values – Bitcoin is down 70% from its peak last fall – has meant big losses for any firm with assets in crypto, as well as less trading revenue and other impacts.

That combined with the collapse of the Terra ecosystem, in which Three Arrows for one was deeply invested, has a lot of crypto companies scrambling. BlockFI just signed a deal to be acquired by FTX to escape its cash crunch, for example, and broker Celsius has placed a hold on $8 billion in deposits while it reportedly tries to avoid bankruptcy.

Strong players have emerged as well, with FTX and its billionaire founder Sam Bankman-Fried in particular putting money into some of the struggling firms.

While the full toll remains to be seen, more bankruptcies and acquisitions appear likely.

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