The meltdown in cryptocurrency markets deepened this week, as major players contended with liquidations, withdrawal freezes, trading halts — and, at least in one case, a bailout.
Cryptocurrency broker Voyager Digital on Friday announced a suspension of trading, deposits and withdrawals, while BlockFi, a major digital-asset lender, won the backing of exchange FTX US with the potential to be acquired.
Both companies were upended by the woes of Three Arrows Capital, the beleaguered cryptocurrency hedge fund that was ordered for liquidation by a British Virgin Islands court this week and filed for Chapter 15 bankruptcy protection in New York.
Meanwhile, cryptocurrency markets slumped, adding to a decline that has wiped away some $2 trillion of market value and leaving market participants uneasy heading into the Fourth of July long weekend in the US.
“I had begun to think that dominoes had stopped falling in mid-June,” said Aaron Brown, a cryptocurrency investor and Bloomberg Opinion contributor.
“I suspect by Tuesday morning, there will be more bad news, although I make no specific predictions.”
Much of the industry’s recent liquidity issues stem from the troubles at Three Arrows, which suffered large losses after making big bullish bets on everything from Bitcoin to Luna, part of the Terra ecosystem whose implosion in May sparked a major market spasm.
Founded in 2012 by Zhu Su and Kyle Davies, former Credit Suisse traders, Three Arrows has become emblematic of the industry’s excesses during last year’s bull run, when it built up leverage that proved destructive when the market turned.
The fuller extent of their impact on the industry is starting to emerge: Blockchain.com and Deribit, a cryptocurrency derivatives exchange, this week confirmed that they are among creditors that sought the liquidation of Three Arrows.
A Blockchain.com spokesman said it was also co-operating with investigations into activities by Three Arrows, which has been reprimanded by Singapore’s central bank over false information.
“Crypto is a nascent industry, but intense competition developed amongst service providers vying for the business of a small set of entirely new counterparties,” said Alex Felix, managing partner at CoinFund.
Kyle Samani, co-founder and managing partner at Multicoin Capital, said there was a need for appropriate regulations and transparency, and that an industry coalition should come together to protect retail customers.
Voyager’s chief executive Stephen Ehrlich said it needed additional time to explore strategic alternatives, something that Celsius Network, which has also halted withdrawals, has also been pursuing.
Sam Bankman-Fried, who has acted as a lender of last resort for the industry, earlier turned down a bailout request by Celsius, according to an insider.
“This was a tremendously difficult decision, but we believe it is the right one given current market conditions,” Mr Ehrlich said in a statement.
Voyager plunged as much as 43 per cent in US trading following Friday’s news, making it one of the worst performing cryptocurrency stocks.
Based in New York, Voyager offers cryptocurrency trading, staking — a way of earning rewards for holding certain cryptocurrencies — and yield products.
Last month, Voyager issued a notice of default to Three Arrows on a loan worth roughly $675 million. It is actively pursuing recovery from the cryptocurrency hedge fund, including through the court-ordered liquidation process in the British Virgin Islands. It has received a credit line from Alameda Research, Mr Bankman-Fried’s trading company.
Mr Bankman-Fried is considering more acquisitions as he solidifies his outsize influence in the industry. The cryptocurrency mining industry might be his next target, he said.