Voyager Digital Files for Chapter 11 Bankruptcy Protection

Popular cryptocurrency lender Voyager Digital declared bankruptcy late Tuesday, becoming the second high-profile crypto firm to do so in recent days. Voyager, based in Toronto, filed an application Chapter 11 bankruptcy protection Tuesday in the Southern District of New York. She estimates that she has more than 100,000 creditors and assets worth between $1 billion and $10 billion. The same range was also recorded for its liabilities.

Reorganization is generally permitted under Chapter 11 and usually involves a corporation or partnership. A Chapter 11 debtor typically comes up with a reorganization plan to continue operating their business and paying creditors over time. According to a statement, the company anticipates that “funds will be available for distribution to unsecured creditors.”

So what really happened?

On June 24, Voyager claimed to have approximately $137 million in cash and crypto-assets in its possession. The company unveiled the following Monday that he had hired investment bank Moelis & Company as financial consultants and used $75 million of the Alameda loan to enable customer orders and withdrawals. According to insiders, however, Alameda Ventures has no plans to recoup that money.

The filing comes at a time when industry watchers are scrutinizing Voyager’s business practices. Specifically, how the Canadian-listed company said in its marketing materials that the Federal Deposit Insurance Corporation (FDIC) protects investors’ deposits.

Although cash deposits held in banks up to a limit of $250,000 are protected by FDIC insurance, funds that have been converted into stablecoins would not be covered.

Additionally, FDIC protection kicks in if a bank fails (in this case, the Metropolitan Bank of New York, which banked Voyager). There is no backup plan in case Voyager breaks down.

What is the toll on the rest of the market?

In recent weeks, several cryptocurrency companies and lenders, in particular, have encountered solvency problems. These prevented customers from withdrawing their money. With the announcement of the cessation of direct debits in mid-June, Celsius started this trend last month.

The past few days have seen withdrawal limitations or outright shutdowns declared by CoinLoan, CoinFLEX, and Voyager itself. Voyager files for bankruptcy alongside Three Arrows Capital.

Here it is worth pointing out that 3AC submitted a Chapter 15 petition. This was as part of an ongoing liquidation proceeding that was mandated by a court in the British Virgin Islands.

As of Tuesday’s close, Voyager’s stock, already damaged by the crash in the cryptocurrency market, was trading at 27 cents. This suggested a market capitalization of C$65 million (about $50 million).

According to the aforementioned bankruptcy filings, this is less than the $75 million in unsecured loans made by Alameda Research. The stock was trading above $20 in November last year, but fell below $1 last month.

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