Voyager Digital, a Crypto Lender based in New Jersey, Filed Bankruptcy

As the market crisis spreads, Voyager files for Chapter 11 bankruptcy due to their huge exposure to Three Arrows Capital. It was announced on July 6, 2022, that Voyager had filed for Chapter 11 bankruptcy.

Voyager Digital Files for Bankruptcy

 

Voyager Company and Customer Update: https://t.co/1VLshQrJrr

— Voyager (@investvoyager) July 6, 2022

This followed the firm's admission on June 22 that it had significant exposure to Three Arrows Capital (3AC) in the form of unsecured loans.

“Voyager concurrently announced that its operating subsidiary, Voyager Digital, LLC, may issue a notice of default to Three Arrows Capital ("3AC") for failure to repay its loan. Voyager's exposure to 3AC consists of 15,250 BTC and $350 million USDC. The Company made an initial request for a repayment of $25 million USDC by June 24, 2022, and subsequently requested repayment of the entire balance of USDC and BTC by June 27, 2022. Neither of these amounts has been repaid, and failure by 3AC to repay either requested amount by these specified dates will constitute an event of default.” - Voyager Press Release

With the news of Voyager's bankruptcy procedures, certain fascinating findings in the bankruptcy files can now be examined. According to the company's filing, Alameda Research borrowed $376 million from Voyager for unexplained reasons. 

While it is rather puzzling that the corporation ostensibly striving to shore up the sector and prevent the balance sheet contagion is simultaneously borrowing money from an insolvent firm (in which Alameda owns 9.49 per cent), there are a few reasons that come to mind.

• In the cryptocurrency sector, it is not uncommon for a proprietary trading desk to borrow capital (specifically denominated in assets other than the dollar).
• Given that Voyager's assets (namely customer deposits) were partially denominated in bitcoin, Alameda could be borrowing BTC to use for market-making/shorting, with the intention of repaying the loan at a later point.
•  Although the loan details are unknown, given Alameda's ownership share in Voyager, it stands to reason that the company would not call in the loan, which would reduce expected interest revenues.

We believe that the market will require lower pricing and/or extensive time to recover from the damage sustained in recent months, both in terms of balance sheet impairment and reputation/legitimacy.