Crypto: Hedge Fund Debacle May Ruin Two Prominent Lenders

Voyager Digital just abruptly halted fund withdrawals, while BlockFi struck a deal with a potential savior.

Two more. 

The carnage continues in the crypto industry. Two days after Singapore hedge fund Three Arrows Capital (3AC) was forced into liquidation, two of its lenders are being forced to take drastic decisions to avoid collapsing in turn.

BlockFi has signed a bailout deal with FTX US, the U.S. subsidiary of cryptocurrency exchange, which is owned by young billionaire Sam Bankman-Fried. The deal, announced on Twitter by BlockFi CEO Zac Prince, includes an option given to FTX to acquire BlockFi at a variable price based on performance, but the maximum price is $240 million. 

The agreement also includes a $400 million credit revolver facility. In the end, the transaction is valued at $680 million.

FTX May Acquire BlockFi

“Yesterday we signed definitive agreements, subject to shareholder approval, with FTX US for: 

1. A $400M revolving credit facility which is subordinate to all client funds, and 

2. An option to acquire BlockFi at a variable price of up to $240M based on performance triggers,” Prince announced.

He added that: “This, together with other potential consideration, represents a total value of up to $680M.”

“We have not drawn on this credit facility to date and have continued to operate all our products and services normally. In fact, we raised interest rates, effective today.”

BlockFi, which promised to compete with traditional banks, recently had to cut 20% of its workforce to adapt to a macroeconomic environment undermined by fears of recession and inflation at its highest in 40 years.

The firm is among the victims of the liquidity crisis currently affecting the crypto industry following the collapse of sister tokens Luna and UST which saw at least $55 billion disappear in May.

Voyager Digital Suspends Withdrawals

The firm had loaned a large sum of money to 3AC. However, the latter has suffered colossal losses linked to its exposure to Luna and missed lender margin calls, meaning it couldn’t come up with what it owed to its lenders.

In addition to BlockFi, the lender Voyager Digital  (VYGVF) – Get Voyager Digital Ltd Report is also one of the victims of the setbacks of 3AC to whom the platform had lent 15,250 Bitcoin and $350 million in stablecoin USDC. In total, 3AC owed roughly $647 million based on Bitcoin prices at the time of writing.

Faced with 3AC’s inability to pay, Voyager Digital slapped the company with a default notice on the loan on June 27.

But this non-payment has important consequences since Voyager finds itself unable to meet its obligations to its customers at this time. Basically, the company does not have enough cash on hand to meet the demands of its customers at the moment.

After receiving a loan from the quantitative trading platform Almeda Ventures, which belongs to Bankman-Fried, Voyager just announced that it was “temporarily suspending trading, deposits, withdrawals and loyalty rewards, effective at 2 p.m. Eastern Daylight Time today [July 1].”

This means that customers cannot access to their money.

“This was a tremendously difficult decision, but we believe it is the right one given current market conditions,” said Stephen Ehrlich, chief executive officer of Voyager in a press release.

“This decision gives us additional time to continue exploring strategic alternatives with various interested parties while preserving the value of the Voyager platform we have built together. We will provide additional information at the appropriate time.”

The company, which is listed on the stock exchange, said it has engaged Moelis & Company and The Consello Group as financial advisors, and Kirkland & Ellis LLP as legal advisors, to help explore its options.

Voyager Digital shares closed down 25% on July 1. They are now worth only $0.3300, compared to $16.6260 at the close on July 1, 2021.

Voyager Digital thus joins a list of crypto lenders going through a liquidity crisis. Babel Finance and Celsius Network have also suspended various operations including withdrawals

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Union Capital Financial Group Ltd, registered in the British Virgin Islands, does not provide investment services inside the United States. The company only provides consulting, advisory and educational services.