Crypto investors are known for their dedication, but their confidence is cracking as the latest corporate meltdown rocks the industry.
The news that clients of bankruptcy broker Voyager Digital Ltd. likely won’t get all their money back has instilled a new kind of fear among those who are already victims of the industry’s rapid decline.
Crypto traders often ignore big losses, arguing that they are holding for the long haul and expecting prices to rebound. Yet for investors who have trusted Voyager for their retirement savings, down payments and emergency cash, the prospect of their investments disappearing forever is a wake-up call for those who thought the big trading platforms offered a form of security.
Twenty-one-year-old Aaron Selenica says he “got into the crypto craze” last fall after hearing about bitcoin from his friends and joining the University of Connecticut crypto club. He saw ads for Voyager at school basketball games and eventually invested around $15,000 in Bitcoin on the platform.
Now his holdings are worth around $6,900 and he doubts he can even get it back. He knew investing in crypto was risky, but he never expected the platform to crash.
“I feel like I was robbed,” he said. “I just don’t understand how it could be legal. I will not invest on another platform. I’m done with cryptography.
The recent crypto plunge, with Bitcoin down around 70% from its peak, is fueling widespread financial problems for companies involved in the space. Lenders like Celsius Network, Babel Finance and Vauld have suspended withdrawals, while companies like Coinbase Global Inc. are cutting jobs. The Voyager implosion is the latest debacle is what is now called a crypto winter.
“This kind of downside risk can be pretty brutal,” said Mike Bailey, director of research at FBB Capital Partners. “In a way, when investors experience these kinds of losses, such as when a bond goes to zero, it can give the impression that the system is broken. In this case, investors can believe an impression that the system failed, leading to a desire to get out.
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 recover all that is owed to them. The platform has approximately $1.3 billion in crypto assets.
Crypto traders who can still withdraw their money from the platforms do so quickly. The total exchange 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.”
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.
Ralpha Twam, a 39-year-old healthcare recruiter from New Jersey, thought his money was safe on Voyager because it’s FDIC insured. After trying crypto for the first time in 2017, he opened a Voyager account in November because he heard about the rewards the company was offering, such as a 9% average return percentage.
He mainly uses his account for short-term trading, but just deposited about $10,000 two weeks ago – still in US dollars on the platform – and can no longer access it, although the funds are not in any type of crypto token. He said he felt the company was using “deceptive marketing tactics”.
Voyager said those with US dollar deposits will be able to get that money back “after a reconciliation and fraud prevention process” 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.”