Voyager bankruptcy shakes true believers

“This type of downside risk can be quite brutal,” said Mike Bailey, director of research at FBB Capital Partners. “In a way, when investors experience these kinds of losses, like when a bond drops to zero, it can make the system seem like it’s broken. In this case, investors may believe an impression that the system has failed, leading to a desire to exit.

Voyager has just filed for bankruptcy and many legal questions remain unanswered. But the company has made clear in its bankruptcy exit plan that account holders will be “weakened” by the Chapter 11 process, meaning they are unlikely to get back all they are owed. The platform has approximately $1.3 billion in crypto assets.

Cryptocurrencies were beaten in 2022.Credit:PA

Crypto traders who can still withdraw their money from the platforms do so quickly. The total trade balance has fallen more than 20% from the January 20 high, according to Glassnode. Meanwhile, on-chain activity for Bitcoin had fallen 13% in early July from the peak in November.

For Telvin Hodo in Georgia, not having access to money from his Voyager account could jeopardize his recent home purchase. The 29-year-old teacher has invested around $11,000 over the past year on the platform in coins like Bitcoin, Dogecoin, and Polkadot, as well as stablecoins. Now the value of his holdings has dropped by about half, and he can’t even access the money he needs for the down payment and closing costs on his house.

“It’s terrible,” he said. “I can’t buy or sell, and I don’t know how long it will be before I can. »

last storm

For many crypto traders, it is to be expected that the value of their holdings will drop, at least occasionally. Losing that investment completely is almost unfathomable.

The recent crypto plunge, with Bitcoin down around 70% from its peak, is fueling widespread financial problems for companies involved in the space.

Ralpha Twam, a 39-year-old healthcare recruiter from New Jersey, thought his money was safe on Voyager because it’s FDIC insured. After first trying out crypto in 2017, he opened a Voyager account in November because he heard about the rewards the company was offering, such as an average percentage return of 9%.

He mainly uses his account for short-term trading, but he just deposited around $10,000 two weeks ago – still in US dollars on the platform – and can no longer access it, although the funds are no longer there. of any kind. cryptographic token. He said he felt the company was using “misleading marketing tactics”.

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Voyager said those with US dollar deposits will be able to get that money back “after a process of reconciliation and fraud prevention” is completed, but Twam is not optimistic.

“It’s definitely a lesson learned that you have to be diligent,” he said. “It’s so easy to get drawn in, but you have to read the fine print. »

Bloomberg

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