Voyager shares plunge after warning of Three Arrows crypto loss

Shares of Voyager Digital plunged more than 60 percent on Wednesday after the crypto broker said it could lose more than $650 million it loaned to struggling hedge fund Three Arrows Capital.

Toronto-listed Voyager said it loaned the USDC stablecoin along with 15,250 Bitcoin worth $350 million to Three Arrows, a crypto hedge fund that failed to meet margin calls from several lenders earlier this month.

The revelations shed more light on the extent of the damage the crisis has wrought on Three Arrows, a Singapore fund known for its bullish long bets on crypto. Other crypto lenders, including BlockFi and Genesis, also attempted to repay their loans to the fund this month.

Three Arrows has been hit by the broader downturn in crypto markets that has unfolded since the May collapse of stablecoin Terra, in which the fund was heavily invested. Another crypto lender, Celsius Network, stopped withdrawals this month.

Voyager offers rewards to retail investors who deposit their crypto, as well as a debit card and an app for trading digital assets. In return, she promised customers returns of up to 12 percent. At the end of March, it held $5.5 billion in crypto assets payable to customers.

These liabilities included stablecoin USDC worth $840 million and 33,000 Bitcoin units. A stablecoin is a type of cryptocurrency pegged to assets such as the US dollar and acts as a bridge between existing financial markets and the crypto world.

Voyager said it had asked Three Arrows to repay the loan by early next week but was "unable to estimate at this time the amount it may recover."

Shares fell 61 percent in early trading, valuing the company at just C$150 million ($116 million). The company's shares have fallen 95 percent since their peak in November 2021.

The announcement did not mention whether Voyager held collateral for its loan to Three Arrows. It declined further comment.

Earlier this month, Voyager said it “differentiates itself through a straightforward, low-risk approach to lending and asset management by working with a select group of reputable counterparties.” At the time, Chief Executive Steven Ehrlich said Voyager was “well capitalized and well positioned to weather this market cycle and protect client assets.”

Voyager said it had just $152 million in cash and crypto assets on hand at the start of this week, plus $20 million in cash restricted for purchasing USDC. The lender said on Wednesday it had secured a line of credit worth $200 million in cash and $15,000 in Bitcoin from Alameda Research, the trading firm of crypto grandee Sam Bankman-Fried.

The terms of the credit facility allow Voyager to draw down no more than $75 million over a 30-day period. Bankman-Fried's FTX crypto exchange also extended a $250 million loan to BlockFi this week.

Just last month, Three Arrows Capital and Alameda participated in a private placement of Voyager shares that raised $58 million. Alameda currently owns 11 percent of the company, Voyager said Wednesday.

Voyager's most recent quarterly market update showed that four counterparties accounted for 79 percent of the $2 billion loan book as of the end of March. The top two alone accounted for more than half of the exposure.