Voyager hit hard by 3AC contagion

GB Market Commentary 27/06/2022

by Marcus Sotiriou

Bitcoin continues to consolidate just over $21,000 as we are starting to see more contagion effects of the collapse of both Three Arrows Capital and Celsius. A crypto brokerage named Voyager Digital, said last week that it had lent Three Arrows Capital 15,250 bitcoins and $350 million worth of USDC. Today, the total of this loan is worth more than $675 million. Voyager gave Three Arrows Capital until Friday to repay $25 million USDC and the entire outstanding loan by today.

In response to Three Arrows Capital failing to repay the loans, Voyager has issued a notice of default. Voyager has revealed a collaboration with Alameda Ventures, who has provided Voyager with a line of credit worth $500 million. Voyager will use the funds borrowed from Alameda to meet customer orders and withdrawals – they have already accessed $75 million of the line of credit.

As every major lender has been severely impacted by the demise of Three Arrows Capital, including BlockFi, Celsius, Voyager and Genesis, it is clear that the main market-native risk to crypto is contagion. However, once the space receives regulatory clarity in the coming months, I think this risk will reduce significantly in the future, hence why I am still long term bullish despite the negative short-term impacts.

SEC Chairman Gary Gensler has reportedly proposed a “one rule book” for crypto regulation. Gensler said, “If this industry is going to take any path forward, it will build some better trust in these markets.”. Despite Gensler taking a hard line on crypto since he has been named SEC Chairman, I agree with him more on this point. Waves of institutional capital is side-lined from the crypto industry until countries like the U.S. provide regulatory clarity.

However, regulation by enforcement, which has been the method so far, is not the best approach. Blockchain analytics company Elliptic says that U.S. regulators have collected $3.35 billion through enforcement actions in the crypto industry over the years, with over 70% of that sum going to the SEC. Many of these enforcement actions relate to cryptocurrencies being deemed as securities, without the SEC providing any clarity on what a security within crypto is. As long as this uncertainty remains, crypto may struggle to attract mass adoption from institutions.