2008 echoes
The crypto contagion continues to ripple.
What we are witnessing in the cryptocurrency markets is similar to what Wall Street banks went through in 2008. That is, overleveraged firms staring insolvency in the face following reckless lending and boundless greed during a historic bull run.
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The latest firm in the crosshairs is Voyager Digital, the publicly listed digital asset broker. They were in over their head with insolvent crypto hedge fund Three Arrows Capital (3AC), revealing that the fund failed to repay a loan of $350 million in the U.S. dollar-pegged stablecoin, USDC, taip pat 15,250 Bitcoins, worth about $315 million at today’s prices for a total of approximately $665 million.
This sent share prices tumbling, although a quick look at the performance this year shows there are deeper problems. Voyager opened 2022 trading at $13 per share. At time of writing, it is trading at 37 cents, down 97%. Ouch.
Is Voyager insolvent?
A default notice has been issued to 3AC, but this total loan of $665 million is a staggering amount when digging into Voyager’s financials. Last Friday, the firm revealed it had approximately $137 million in USD and owned crypto assets, adding that it also had access to $200 million in cash and a USDC revolver. Finally, a 15,000 bitcoin revolver is in place from Alameda (about $500 million).
Alameda, founded by FTX CEO Sam Bankman-Fried, made an additional move, extending a loan worth about $500 million in total to Voyager (Almeda previously invested in the firm). However, as outlined above, this is over $150 million shy of the exposure to 3AC and it is unclear whether this will be enough to rescue the company from insolvency.
We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands
Voyager ceo Stephen Ehrlich
The odds appear long that the firm can survive this crisis and regain its footing, especially when considering the intensely bearish sentiment both in the stock market and crypto.
Terra Contagion
You may recognise some of these names, and it serves to highlight just how interconnected and systemic the risk was with these centralised platforms. 3AC’s spiral was triggered by Terra’s collapse, with founder Zhu Su even sporting the Luna symbol in his Twitter name until recently, and repeatedly promoting the coin on Twitter.
Source: https://invezz.com/news/2022/06/28/voyager-digital-facing-insolvency-echoes-of-2008-in-crypto-markets/