Voyager Digital caught up in crypto crash with hedge fund Three Arrows Capital defaulting on US$655m loan

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By Louis Allen - 

US cryptocurrency platform Voyager Digital’s (TSX: VOYG) shares sank 53% on Wednesday after it was announced troubled hedge fund Three Arrows Capital may default on a US$655 million loan it had secured.

The news comes as the crypto sector’s recent crash has investors panicking across the globe.

The TSX-listed company, renowned for being a US trading platform allowing retail and institutional investors to buy and sell crypto, recently became involved in offering loans to institutional borrowers.

On Wednesday this week, Voyager disclosed it had loaned US$655 million to US hedge fund Three Arrows – containing 15,250 bitcoin and US$350 million in USDC.

Voyager advised investors that its subsidiary had requested a repayment of US$25 million worth of USDC, a cryptocurrency, from Three Arrows by 24 June, while also asking for the total amount of USDC and bitcoin by 27 June.

“Neither of these amounts has been repaid, and failure by [Three Arrows] to repay either requested amount by these specified dates will constitute an event of default,” the company said.

“[It’s] unable to assess at this point the amount it will be able to recover.”

According to the Voyager’s March quarter filings, it had lent US$2 billion worth of crypto assets, which is alarming in light of the recent crash within the crypto sector.

Crypto sector crash

Following Wednesday’s disclosure, Voyager’s shares had dropped by 53% at close of trade, with its shares also down 95% since the start of the year.

There’s no doubt this has the company scrambling, with its market value spiraling from US$3 billion to US$148 million in just the space of six months.

The cryptocurrency sector has been bottoming for some time now, with the price of bitcoin dropping 70% since November when it enjoyed its peak.

Voyager isn’t the first company to be heavily impacted by the crypto collapse, after Galaxy Digital fell into a similar trap.

Galaxy Digital chief executive Mike Novogratz issued an apology in May for the company’s promotion of crypto Luna, which also crashed, sending Galaxy’s shares falling 86% from its peak.

Three Arrows exploring options

Three Arrows has hired legal and financial advisers after heavy losses during the recent crypto sector collapse.

The US hedge fund, which was set up in 2012, invested roughly US$200 million in Luna – creating potentially insurmountable losses for the company when Luna plunged.

As a result of the crash, there are rising fears the effects will be significant as the sector commenced its involvement in becoming a shadow banking system complete with loans and other products.

As was the case with many of the loans, the collateral pledged often was in the form of crypto.

Voyager saved by Alameda Ventures

With liquidity issues due to Three Arrows’ loan default, Voyager has since announced it entered into an agreement with Alameda Ventures “related to the previously disclosed credit facility, which is intended to help Voyager meet customer liquidity needs during this dynamic period.”

The company reportedly received US$200 million cash and USDC revolver, as well as a 15,000 BTC revolver loan.

Voyager says the Alameda loan will be used to “safeguard customer assets” due to the current market volatility.

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