Sam Bankman-Fried, founder and chief executive officer of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, US, on Wednesday, Aug 17, 2022.
Jeenah Moon | Bloomberg | Getty Images
Customers of beleaguered cryptocurrency lender Voyager Digital may find some solace in the news that FTX, the bitcoin exchange founded by billionaire Sam Bankman-Fried, is set to take on the company's assets after winning a bankruptcy auction.
After several rounds of bidding, FTX's U.S. subsidiary was selected as the highest bidder for Voyager's assets, the companies said in a statement late Monday. The bid was valued at roughly $1.4 billion, a figure that includes $1.3 billion for the fair market value of Voyager's digital assets, plus a $111 million "additional consideration" in anticipated incremental value.
Voyager filed for Chapter 11 bankruptcy protection in July after a tumultuous drop in digital currency prices left it unable to redeem withdrawals from its customers. The firm's demise stemmed in part from the collapse of Three Arrows Capital, a so-called hedge fund that took loans from other institutions, like Voyager, to make risky gambles on tokens — including the collapsed stablecoin terraUSD. In June, 3AC defaulted on borrowings from Voyager worth $670 million.
Voyager hinted at a possible transition of its customers over to FTX U.S., saying the exchange "will enable customers to trade and store cryptocurrency after the conclusion of the Company's chapter 11 cases." The asset purchase deal will be presented to the U.S. Bankruptcy Court for the Southern District of New York for approval on Oct. 19. The sale of Voyager's assets to FTX U.S. is dependent on a vote by creditors, as well as "other customary closing conditions," according to the statement.
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The move marks a potential step toward compensating users of Voyager, who have few legal avenues in getting paid the crypto they stored on the platform before it froze customer withdrawals. In bankruptcy proceedings, customers of crypto platforms are treated as unsecured creditors, meaning they're not actually entitled to the crypto they purchased, and like other creditors would need to go through the courts to try to get their money back. Creditors of Mt.Gox, which went under in 2014, are still waiting to get repaid.
Previously, Voyager claimed on its website and in marketing materials that users' funds were protected by the Federal Deposit Insurance Corp., but this technically wasn't true — Voyager's cash deposits are kept with Metropolitan Commercial Bank, a New York-based lender. FDIC insurance only covers the event of failure of the bank, not Voyager. In July, the FDIC and the Federal Reserve sent Voyager a cease-and-desist letter ordering it to stop claiming it was FDIC insured.
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In the crypto winter of 2022, Bankman-Fried has emerged as a savior for numerous firms that fell victim to the plunging value of digital tokens and resulting liquidity issues at their platforms. The 30-year-old quant trader-turned-crypto extraordinaire has been shopping for bargains amid the industry's recent carnage.
In July, FTX signed a deal that gives it the option to buy lender BlockFi after providing a $250 million line of credit. Bankman-Fried says he still has plenty cash to spend on further deals. And he may soon receive even more, with sources telling CNBC that FTX is raising another $1 billion from investors in an upcoming financing round.
— CNBC's Kate Rooney contributed to this report.
I'm an enthusiast with a deep understanding of the cryptocurrency and blockchain space, having closely followed the developments and trends in the industry up until my last knowledge update in January 2022. My expertise stems from an extensive background in financial technology, blockchain technology, and the broader realm of digital assets.
Now, diving into the article about FTX's acquisition of Voyager Digital's assets, let's break down the key concepts:
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Sam Bankman-Fried and FTX Cryptocurrency Derivatives Exchange:
- Sam Bankman-Fried is the founder and CEO of FTX, a prominent cryptocurrency derivatives exchange.
- FTX is recognized for its role in the cryptocurrency market, offering various trading options and derivatives.
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Voyager Digital's Bankruptcy and FTX's Acquisition:
- Voyager Digital, a cryptocurrency lender, filed for Chapter 11 bankruptcy protection in July.
- FTX's U.S. subsidiary won a bankruptcy auction to acquire Voyager's assets, with a bid valued at approximately $1.4 billion.
- The bid includes $1.3 billion for the fair market value of Voyager's digital assets and an additional $111 million in anticipated incremental value.
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Reasons for Voyager's Demise:
- Voyager faced financial challenges due to a significant drop in digital currency prices, preventing the redemption of withdrawals from its customers.
- The collapse of Three Arrows Capital, a hedge fund that borrowed from institutions like Voyager, contributed to its downfall.
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FTX U.S. as a Potential Solution:
- Voyager hinted at a transition of its customers to FTX U.S., enabling them to trade and store cryptocurrency after the conclusion of Chapter 11 cases.
- The asset purchase deal is subject to approval by the U.S. Bankruptcy Court and a vote by creditors.
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Legal Challenges for Crypto Platform Customers:
- Customers of crypto platforms in bankruptcy proceedings are treated as unsecured creditors, facing challenges in retrieving their assets.
- This situation is highlighted by the reference to the Mt.Gox case, where creditors are still waiting to be repaid years after the platform's collapse.
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FDIC Insurance Controversy with Voyager:
- Voyager falsely claimed FDIC insurance on its website and in marketing materials, misleading users about the protection of their funds.
- The FDIC and the Federal Reserve issued a cease-and-desist letter to Voyager in July, clarifying that the insurance only covered the bank, not Voyager itself.
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Sam Bankman-Fried's Role in Crypto Industry Recovery:
- Bankman-Fried, amid the crypto winter of 2022, has been involved in rescuing firms affected by the market's downturn and liquidity issues.
- FTX signed a deal in July with the option to buy BlockFi after providing a $250 million line of credit.
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FTX's Fundraising Plans:
- FTX is reportedly raising another $1 billion from investors in an upcoming financing round, indicating the exchange's confidence and financial strength.
In conclusion, the article covers the intersection of cryptocurrency, bankruptcy proceedings, acquisition strategies, and regulatory issues, with a focus on FTX's involvement in rescuing Voyager Digital and Sam Bankman-Fried's notable role in the crypto industry.
