Cryptocurrencies have been hit hard by fears that interest rate hikes will end the era of cheap money, with the world’s biggest digital asset, bitcoin, down more than 56%% from this year’s peak. Several crypto companies either filed for bankruptcy or were forced to seek emergency capital injections.
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, 3AC’s downfall appears to stem from the company’s bet on the Terra ecosystem, which was behind the failed stablecoin terraUSD. This token lost almost all of its value in May, wiping out nearly half a trillion dollars from the crypto market.
Thanks to its leverage, 3AC was unable to meet margin calls from the counterparties from which it had borrowed. As a result, crypto lenders BlockFi and Genesis Trading liquidated their positions in the company. According to court documents, 3AC’s creditors say they are owed more than $2.8 billion.
CELSIUS NETWORK New Jersey-based cryptocurrency lender Celsius suspended withdrawals on June 12 and a month later filed for Chapter 11 bankruptcy with a $1.19 billion deficit on its balance sheet. It had been valued at $3.25 billion in a funding round in October. Celsius encountered complex investments in the wholesale digital asset market.
The company had attracted retail investors by promising annual returns of up to 18.6%, but struggled to meet redemptions as crypto prices fell. At its first bankruptcy hearing, Celsius’ lawyers said its bitcoin mining could give the company a way to pay back its customers. Meanwhile, several state regulators are investigating Celsius’ decision to suspend customer withdrawals, Reuters reported.
Crypto lender Voyager Digital, also based in New Jersey, was a rising crypto star, reaching a market cap of $3.74 billion last year. But the collapse of 3AC dealt a heavy blow to Voyager, which was heavily exposed to the hedge fund. Voyager has filed claims for more than $650 million against 3AC.
Voyager filed for Chapter 11 bankruptcy on July 6, indicating that it had $110 million in cash and crypto assets. Since then, the US Federal Deposit Insurance Corp has confirmed that it is investigating Voyager’s marketing of deposit accounts for the purchase of cryptocurrency, which the company has advertised as FDIC insured.
Crypto exchange FTX and Alameda Research, both founded by billionaire Sam Bankman-Fried, have offered to buy all of Voyager’s digital assets and loans, except for its loan to 3AC, and allow Voyager’s customers to withdraw their assets from an FTX account. However, Voyager dismissed this offer in a lawsuit as a “low-cost offer”.
Singapore-based crypto lender Vauld filed for creditor protection in a Singapore court on July 8 after suspending withdrawals days earlier. The company owes creditors $402 million, according to a report from The Block. Vauld is backed by billionaire investor Peter Thiel Valar Ventures, Pantera Capital and Coinbase Ventures. In a July 11 blog post, Vauld said he was discussing a possible sale to London-based crypto lender Nexo while exploring potential restructuring options.
Facing increased withdrawals and a hit from 3AC, crypto lender BlockFi signed an agreement on July 1 with FTX that grants BlockFi a $400 million revolving credit facility and includes an option that allows FTX to buy the company for up to $240 million .
BlockFi was hit hard by the crypto crash and implemented several cost-cutting measures in June, including a 20% reduction in its workforce and a reduction in executive compensation. The company was valued at $3 billion in a funding round last year.