“I just wake up and cry”: Voyager and Celsius bankruptcies have shattered some crypto investors’ confidence in centralized platforms – MarketWatch | Vette Leader

Yotsy Ruiz recently bought his first-ever crypto hardware wallet – a Nano X from Ledger. He transfers all his crypto holdings that he can still move to the small physical device that looks like a USB stick, and away from big centralized exchanges like Binance and Coinbase.

The 40-year-old Frederick, Md. resident, who owns a home remodeling business, hastily made the move after crypto broker Voyager Digital, to whom he entrusted some of his life savings, froze all user withdrawals and filed for bankruptcy protection in early July.

In November, Ruiz invested about $33,000 in crypto on the Voyager platform. Its holdings, including more than 11,110 Cardano ADAUSD,
-1.70%
and 360,000 Terra Luna Classic LUNAUSD,
-1.17
among others is worth around $5,000 today as crypto prices have fallen. Now it’s unclear if Ruiz will ever get his coins back.

“Sometimes you want to buy coins like Shiba Inu SHIBUSD,
-1.25,
You want to buy Dogecoin DOGEUSD,
-1.99%,
People tell you: ‘No, no, don’t buy this, these are bad products and you can lose the money.’ But then you trusted these exchanges. They didn’t just lose a coin, they lost all the money there,” Ruiz said in an interview with MarketWatch.

Voyager said it had attracted more than 3.5 million users as of March 31 by offering high interest rates of up to 12% on their crypto deposits and connecting customers to trade with crypto exchanges and market makers. It’s also partnered with Mastercard on a debit card backed by stablecoin USDC that grants annual rewards of up to 9%. But the crypto broker sank into the quagmire after saying Three Arrows Capital, a Singapore-based digital asset hedge fund whose liquidation was recently ordered by a British Virgin Islands court, was with over $650 million in loans defaulted on to the company.

With the cryptocurrency crash, several companies like Voyager and Celsius Network, which sprung up in the go-go years to offer investors in digital currencies lightly regulated financial and banking services, have collapsed. With bitcoin trading 70% lower from its all-time high and smaller coins falling even more, crypto lender Celsius, which says it has more than 1.7 million customers, halted all customer withdrawals in June and filed for bankruptcy protection on Wednesday. Now Celsius customers face being unsecured creditors in federal bankruptcy court in New York. Digital asset exchange CoinFlex has also suspended customer withdrawals. These failures have shaken investor confidence in many of the companies that underpin a burgeoning industry that has attracted huge inflows of capital.

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Ruiz, who also invested in Terra Luna Classic, formerly known as Luna, felt more devastated by Voyager’s recent bust than he did in May when he saw Luna plummet from more than $80 to almost zero in a week. Terra’s collapse was a major blow, but “all was not lost and I knew I had to take the risk,” Ruiz said. “I have other solid projects over the long term.” Ruiz, who says his portfolio is split between stocks and crypto, believes some digital currency prices will eventually rise.

It’s one thing to suffer losses from a token, but another when a centralized platform restricts access to all of your cryptos on it, Ruiz said. In the Voyager case, “I didn’t even know how to tell my wife,” Ruiz said. “She still doesn’t know.”

Ruiz has since lost confidence in many cryptocurrency institutions. “I don’t intend to use exchanges anymore,” Ruiz said. “When I do that, I just buy bitcoin for like $1,000 and then immediately try to transfer it back to another wallet where I want to keep my money.”

Voyager offered crypto depositors interest rates of up to 12% annually. Now it’s in the bankruptcy court.

Justin Sullivan/Getty Images

In Orlando, Fla., another 40-year-old Voyager customer has come to a similar conclusion. The investor, who works in information security, told MarketWatch that he hopes to transfer all his cryptos to an offline storage vehicle or cold wallet if he ever manages to retrieve his funds locked on the Voyager platform. The investor asked not to be identified because he is concerned about the impact, saying that Voyager “is a company that I no longer trust. I don’t know what they would do.”

The investor has more than $114,000 worth of Bitcoin BTCUSD,
-1.29%,
ether ETHUSD,
-1.35%
and stablecoin USDC USDCUSD,

deposited with Voyager, about 80% of his family’s life savings. When he received an email from Voyager on July 1 that the company had stopped paying out users, “my heart sank.”

“I felt pain go through my body. I did not know what to say. I mean, when I think about it, it was the worst thing that ever happened,” the investor said. “Honestly, sometimes I just wake up at night and cry. ‘Cause it’s such unbelief to me. Like it’s one thing that you buy an asset and the asset goes down. It might show up one day, and we still have access to it, right?”

In fact, the decision to invest in Voyager in March 2021 was a “very cautious” decision, according to the investor, after comparing several different platforms and doing research on their management teams. Voyager was a public company listed on the Toronto Stock Exchange and the investor was able to find much of its financial information by reading its securities filings. “They were very solvent,” he thought. “Conditions were good. They had a good operational business. I also looked at their business model and customer base growth,” said the investor. The platform is now “very intuitive, very easy” to use. It was also marketed that all US dollar deposits were insured by the Federal Deposit Insurance Corporation, the US government agency that supports depositors in American banks, which was a great incentive. Voyager had a partnership with the Metropolitan Commercial Bank, a New York community bank.

Voyager recently assured investors that their US dollar deposits would be fully refunded after completing a “matching and fraud prevention process.” However, users who have crypto assets on the platform will instead receive a combination of a portion of their crypto, proceeds from the restoration of Three Arrows, common stock of the reorganized company and Voyager’s own token VGX, subject to change and subject to change according to the company’s restructuring plan the court approval.

Still: “Who would want these utility tokens for the company that has lost all trust?” asked the investor. “If they ever show up again… who’s going to come and do business with these people?” The company’s stock was also unattractive to him. “I just want my headmaster back. I am willing to forgo any interest they give me.”

Voyager officials did not respond to requests for comment.

According to Daniel Saval, a partner at law firm Kobre & Kim, many, if not most, crypto exchanges pool customer funds, not segregate them. In the event of a bankruptcy filing, the question of whether customers are treated as unsecured creditors becomes important. If a client “cannot demonstrate that they are in control of their accounts, that they are unable to actually identify or track their specific crypto assets, then those assets will most likely be considered property of the bankruptcy estate,” Saval said . That means customers are sharing the pool of wealth with all other creditors, rather than demanding what was in their accounts, Saval said.

In May, Coinbase COIN, the largest US-based crypto exchange, added to its securities filings that in a bankruptcy situation, “the crypto assets that we hold in custody on behalf of our clients could be the subject of bankruptcy proceedings and such clients could as well as our general dealt with unsecured creditors.” Celsius Network’s bankruptcy filing in federal court in New York on Wednesday means its customers in this case face becoming unsecured creditors, with limited claims only to the general bankruptcy estate and not to their specific accounts.

Maxwell McIntyre, a 39-year-old who works for the US Department of Defense in Japan, has about $14,000 at Voyager. Most of the funds are in US dollars thanks to its decision to convert most of its USDC on the platform to dollars on June 20, a few weeks after Celsius stopped withdrawing.

McIntyre believes he will recover the US dollar deposits, but as far as crypto goes, “I pretty much just expect that to be lost at this point,” McIntyre said.

Overall, he feels that “we’ve been lied to quite a bit about all of this.”

“Just a few weeks ago we were told that all of our assets are great. They have a lot of capital and don’t lend to risky decentralized financiers,” McIntyre said. He also felt bad that he had once recommended Voyager to his mother, wife and children. He even helped his wife set up an account to pass down to their kids — it’s worth about $4,360.

Despite this, McIntyre said his view of cryptocurrencies “hasn’t changed one bit.” He believes that crypto could be a “very powerful financial instrument” with the potential to solve some world problems.

But he no longer has the same confidence in centralized platforms. “I’m definitely not going to keep it on an exchange just to earn that little extra interest when there’s a very good chance I could lose it,” McIntyre said.

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