Cryptocurrencies have been hard hit by fears interest rate hikes will end the era of cheap money, with the world’s largest digital asset, bitcoin, down more than 56 per cent from this year’s high. Several crypto companies have filed for bankruptcy or have been forced to look for emergency capital infusions.
THREE ARROWS CAPITAL
Singapore-based crypto hedge fund Three Arrows Capital (3AC) filed for Chapter 15 bankruptcy on July 1.
Once a formidable player in the digital asset space, the downfall of 3AC appeared to stem from the firm’s bet on the Terra ecosystem, which was behind failed stablecoin terraUSD. That token lost nearly all of its value in May, shaving almost half a trillion dollars off the crypto market.
High-leveraged, 3AC was unable to meet margin calls from counterparties it had borrowed from. Consequently, crypto lenders BlockFi and Genesis Trading liquidated their positions with the firm. According to court filings, 3AC’s creditors claim they are owed more than $2.8 billion.
New Jersey-based crypto lender Celsius suspended withdrawals on June 12 and a month later filed for Chapter 11 bankruptcy, listing a $1.19 billion deficit on its balance sheet. It had been valued at $3.25 billion in a funding round in October.
Celsius stumbled on complex investments in the wholesale digital asset market. The company had attracted retail investors by promising annual returns as high as 18.6 per cent, but struggled to meet redemptions as crypto prices slumped.
In its first bankruptcy hearing, Celsius lawyers said that its bitcoin mining operations could provide a way for the company to repay customers.
Meanwhile, several state regulators are investigating Celsius’ decision to suspend customer withdrawals, Reuters reported.
Crypto lender Voyager Digital (VYGVQ.PK), also based in New Jersey, had been a rising crypto star, reaching a $3.74 billion market cap last year. But the collapse of 3AC dealt a major blow to Voyager, which was heavily exposed to the hedge fund. Voyager has filed claims of more than $650 million against 3AC.
Voyager filed for Chapter 11 bankruptcy on July 6, reporting that it had $110 million worth of cash and crypto assets on hand. Since then, the US Federal Deposit Insurance Corp has confirmed that it is probing Voyager’s marketing of deposit accounts for cryptocurrency purchases, which the company had advertised as being FDIC-insured.
Crypto exchange FTX and Alameda Research, both founded by billionaire Sam Bankman-Fried, offered to purchase all of Voyager’s digital assets and loans, except its loans to 3AC, and enable Voyager customers to withdraw their assets from an FTX account. However, Voyager rebuffed that offer in a court filing as a “low-ball bid.”
Singapore-based crypto lender Vauld on July 8 filed with a Singapore court for protection against its creditors, after suspending withdrawals days earlier. The company owes $402 million to its creditors, according to a report from The Block.
Vauld is backed by billionaire investor Peter Thiel’s Valar Ventures, Pantera Capital and Coinbase Ventures.
In a July 11 blog post, Vauld said it is discussing a possible sale to London-based crypto lender Nexo while at the same time exploring potential restructuring options.
Facing an increase in withdrawals and a hit from 3AC, crypto lender BlockFi signed a deal July 1 with FTX that provides BlockFi with a $400 million revolving credit facility, and includes an option that enables FTX to buy the company for up to $240 million.
BlockFi was hard hit by the crypto crash, and implemented multiple cost-cutting measures in June, including slashing its headcount by 20 per cent and cutting executive compensation. The company was valued at $3 billion in a funding round last year.