Cryptocurrencies have been hit hard by fears that interest rate hikes will end the era of cheap money, with the world’s largest 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.
Capital of the Three Arrows
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 failure of 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 the margin calls of the counterparties from which it had borrowed. Consequently, crypto lenders BlockFi and Genesis Trading liquidated their positions with the company. According to court documents, 3AC’s creditors say they owe 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, posting a $1.19 billion deficit on its balance sheet. It had been valued at $3.25 billion in a funding round in October.
Celsius came across complex investments in the digital asset wholesale market. The company had attracted retail investors by promising annual returns of up to 18.6%, but struggled to cope with redemptions as crypto prices plummeted.
At its first bankruptcy hearing, lawyers for Celsius said its bitcoin mining operations could provide the company with 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 capitalization 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 of 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 cryptocurrency purchases, 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 loans to 3AC, and allow customers of Voyager to withdraw their assets from an FTX account. However, Voyager rejected this offer in a court filing as a “cheap 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 by 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.
Faced with increased withdrawals and a hit from 3AC, crypto lender BlockFi signed an agreement on July 1 with FTX that provides BlockFi with 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.