TSX-listed Voyager Digital Ltd.’s VOYG-T stock lost half its value in a single day after management warned of a potential default on a US$655-million loan to a troubled hedge fund, as investors continue to fear financial contagion owing to the crypto sector’s recent crash.
Voyager, which went public in Canada in 2019, was historically known for its trading venue that allows retail and institutional investors to buy and sell cryptocurrencies. Lately, however, the company has expanded its operations, and one of its newer divisions offers loans to institutional borrowers. At the end of March, Voyager had lent $2-billion worth of crypto assets, according to its quarterly filings.
On Wednesday, Voyager disclosed that it has lent US$655-million to Three Arrows Capital, a hedge fund known for trading cryptocurrencies, in the form of 15,250 bitcoin and US$350-million worth of USDC, another cryptocurrency.
In a notice to investors, Voyager said it originally requested a repayment of US$25-million worth of USDC from Three Arrows by June 24, and that it has since asked for repayment of the entire balance of USDC and bitcoin by June 27.
“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 wrote, adding that it is “unable to assess at this point the amount it will be able to recover.”
Earlier this month, Three Arrows disclosed it had hired legal and financial advisers after it endured heavy losses during the recent crypto sector crash. The hedge fund, which was founded in 2012, invested about US$200-million in the cryptocurrency luna, and luna’s value plummeted in a matter of weeks in early May. The prices of most cryptocurrencies have also tumbled this year, creating more losses.
After Wednesday’s disclosure, Voyager’s shares dropped by 53 per cent by closing time. The stock is down 95 per cent since the start of the year, sending the company’s market value tumbling to $148-million from roughly $3-billion in six months.
Cryptocurrency values have been plummeting for months and the price of bitcoin has dropped 70 per cent from its November peak. Lately, however, there is a fear the pain will be far-reaching because the crypto sector had started morphing into a shadow banking system complete with loans and other products. In some cases, the collateral pledged against these loans came in the form of cryptocurrencies.
Complicating matters, the growing shadow system had almost no regulation and very little transparency, so it is now tough to determine each lender’s exposures or how everything is connected.
Last week, crypto lender Celsius Network Ltd. froze all withdrawals and transfers between its 1.7 million customers, and has since disclosed that it “will take time” to normalize its operations. Very little remains known about the extent of its woes.
Voyager is now the second TSX-listed cryptocurrency company to suffer from the collapse of luna. In May, Mike Novogratz, the chief executive of Galaxy Digital Holdings Ltd., a leading cryptocurrency company listed on the Toronto Stock Exchange, issued a public apology for promoting luna so heavily, and Galaxy’s shares have tumbled 86 per cent from the record high set in November. At its peak, the company was worth $14-billion.
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Tim Kiladze