8th July 2022 > > Voyager Digital.

tl;dr

Voyager Digital executives are going to jail.

Market Snap (at time of writing)

Market Wrap

A brief spike to over $22k early this morning is cheering news, brought on by a rush to cover shorts. It is possible that much of the deleveraging that needed to take place has in fact taken place. If that is true, we might soon see the start of a material and sustainable recovery in crypto prices, absent any further shocks in the wider financial markets.

Reminder – you cannot time markets. Regular investing to take advantage of dollar cost averaging (DCA) will always give better returns than one-off lump sum investments especially for more volatile assets like cryptos, though this is clearly not investment advice.

Curious Cryptos’ Commentary – Voyager Capital

The CCC reported two days ago that Voyager Digital, despite receiving a $500mm loan from trading firm Alameda Research, has filed for bankruptcy.

It now transpires that $377mm of that loan from Alameda was itself loaned back to Alameda, making the net liquidity provided just $123mm. This sort of financial engineering always makes me very suspicious about what is actually happening behind the scenes – transparency always wins out over deliberate obfuscation.

And just for once I find myself in total agreement with Changpeng Zhao, CEO of Binance, who had this to say:

“Personally, for me, and to a large extent for Binance, we like very simple deals. We like deals like, 'What’s your revenue? What’s your user number?' We don’t like deals where, ‘Hey, I owe you this money, you pay me back this much money, you invest in me, I give you more money in loans, and then you bail me out.' Why don’t we just return all the money and go back to zero and talk about net, who owes who money?”

Though I note that I would be rather more efficient in my use of words in describing this particular sentiment.

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But the waters become murkier still.

Voyager is under investigation by the Federal Deposit Insurance Corporation (FDIC) for making untrue and misleading claims on its website in December 2019:

“Through our strategic relationships with our banking partner, Metropolitan Commercial Bank, all customers’ USD held with Voyager is FDIC insured. That means that in the rare event your USD funds are compromised, you are guaranteed a full reimbursement (up to $250,000), so the cash you hold with Voyager is protected.”

This is a similar situation to the one in the UK, in which any cash you hold in a UK bank account up to £85,000 is guaranteed to be repaid to you by the UK government if your bank becomes insolvent, and you are unable to access your funds.

But Voyager’s claim to be FDIC insured was simply a total and outright lie. Metropolitan Commercial Bank (MCB) is part of the FDIC scheme, so a failure to repay funds because MCB went bust would result in a pay out of up to $250,000.

Insolvency by Voyager is not covered at all.

This is criminal behaviour by the executives of Voyager, and will almost certainly and rightly be rewarded with custodial sentences. There is no wriggle room on this one – they lied on a matter of financial probity in the course of promoting their product. The US is one of the harshest places in the world to make this mistake, making the US one of the very safest places to invest your money.

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I have no sympathy for the executives of Voyager – if they get 5 or 10 years in a tough jail in the United States they deserve it.

But stories like this are not good for cryptos.

The naysayers love ammunition of this nature, using it to portray the crypto world as one comprising frauds and scams at all levels. I would certainly not deny the presence of frauds and scams (see Module 2 of our free on-line training course still in development https://www.curiouscryptos.com/course-modules) but there is plenty of evidence to suggest that cryptos are no more susceptible to such behaviour than any other financial endeavour of mankind.

It also serves as a stark reminder that one should always remain sceptical about claims made by centralised organisations, and that self-custody of the major portion of your crypto holdings remains important and relevant advice.