Voyager Digital, a popular bitcoin and crypto exchange, filed for chapter 11 bankruptcy last month.
Voyager was affected by the contagion that spread through the bitcoin and crypto markets after the Terra stablecoin lost its peg to the US dollar and collapsed. Three Arrows Capital, a Singapore-based crypto hedge fund, announced it was insolvent beginning of July.
The hedge fund had taken out a substantial loan from Voyager Digital worth $670 million, which it defaulted on. Three Arrows Capital’s insolvency and inability to pay back Voyager left a huge hole in the exchange’s balance sheet, leading to insolvency on the part of Voyager as well.
Bankruptcy courts are currently picking up the pieces of what some call a 2008-like meltdown in the bitcoin and crypto markets.
Judge Michael Wiles who is presiding over Voyager’s bankruptcy proceedings stated that there was “sufficient basis” for the exchange’s customers to receive $270 million held in a custodial account at Metropolitan Commercial Bank.
These funds were frozen when Voyager filed for bankruptcy, but are now cleared to be returned to customers. In total, the company is reported to have over $10 billion in debt.
Voyager is currently looking to be acquired and has 88 interested parties bidding to acquire the insolvent exchange.
One of them is Sam Bankman-Fried’s FTX, but Voyager rejected the company’s offer and even sent a cease and desist letter due to FTX allegedly spreading misinformation about having a “leg up” on other bidders.
How much of their funds Voyager customers will be able to recover is unclear. The insolvencies of Voyager and Celsius are an important reminder of the counter-party risk that exists when using custodians.
As bitcoiners always like to say: “Not your keys, not your coins”.
