Voyager’s bankruptcy is the latest sign of cryptocurrency consolidation
Good morning, and welcome to Protocol Fintech. This Wednesday: cryptocurrency consolidation, Atlanta’s fintech hub and eToro’s canceled SPAC deal.
Out of the chain
Why do governments still bother to take crypto for payments? It’s clearly a farce, as a Bloomberg report on Colorado and Utah’s programs to accept bitcoin and other virtual currencies shows. Here’s how it works: Governments negotiate with a service provider to convert crypto to cash, and then the government receives the cash payment for tax due. (The service provider takes on the risk of price volatility.) So what’s the point, as opposed to just letting the taxpayer sell his crypto, since they owe tax on the increase in value anyway? “Many states want to signal that they are industry-friendly,” Samuel Armes, president of the Florida Blockchain Business Association, told Bloomberg. Ah. So this is a bit like New York Mayor Eric Adams who directly deposits his cash salary into a Coinbase account and buys crypto so he can claim to be “paid in bitcoin.” Does anyone actually buy these cryptooperative stunts?
– Owen Thomas (e-mail | twitter)
Cryptoconsolidation is here
The crypto juggernaut has suddenly hit a wall. A once fast-growing industry is in consolidation mode as the value of crypto, cut by more than two-thirds, fell below $ 1 trillion. There is no way around it: It has been messy.
In recent weeks, crypto companies have announced major cuts. Some DeFi borrowers who lured customers in with high returns have now suspended withdrawals as they struggle to stay afloat. Many of these cryptocurrencies are now rushing to the exits as company after company has revealed a surprising degree of exposure to the growing number of troubled players.
Crypto is struggling with a serious liquidity crisis. The infection triggered by the UST-luna collapse has spread as other crypto companies struggle to stay solvent.
- Companies deny customers access to their cryptocurrencies: Voyager Digital, Celsius and Vauld are among those who have suspended withdrawals. CoinDesk columnist Frances Coppola called it “a race to swap cryptocurrencies for the few real dollars that are still available.”
- Some crypto companies have fought for additional funding to deal with the crisis. BlockFi secured a $ 400 million credit facility from FTX, while Voyager Digital signed a revolving credit agreement with Alameda Research worth $ 200 million and $ 15,000 bitcoin.
- But no amount of cash infusion can save any crypto players. FTX CEO Sam Bankman-Fried, who also runs Alameda, told Forbes that “some third-party exchanges” are “already secretly insolvent” and are “basically too far away”. Regulators seemed to agree: Crypto hedge fund Three Arrows Capital was ordered to liquidate. And Voyager filed for voluntary bankruptcy on Tuesday.
The industry is shrinking rapidly. As the crypto market has thrown $ 2 trillion over the past seven months, major cryptocurrencies such as Coinbase, Crypto.com, BlockFi and Gemini announced layoffs. Others are exploring more drastic measures.
- BlockFis’ financing agreement included an agreement that gave FTX an option to buy the crypto lender for up to $ 240 million.
- The M&A wave is also sweeping smaller crypto players. Vauld, which stopped withdrawing after customers withdrew around $ 198 million, agreed to be acquired by Nexo.
- CoinShares acquires cryptocurrency manager Napoleon Asset Management, while the Canadian crypto company WonderFi acquired the cryptocurrency trading service Coinberry.
“It’s a perfect storm that will drive consolidation across the room,” Logan Allin, founder and CEO of Fin Venture Capital, told Protocol. Bitcoin IRA co-founder Chris Kline said the process would separate “healthy companies” from “over-expanded and over-delivered.” The process may be inevitable, but the pain is not enviable.
– Benjamin Pimentel (e-mail | twitter)
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On the money
About minutes: Are you looking for fintech talent? Try Atlanta, where decades of history in payments have given birth to an industry hub that is often overlooked.
EToro terminated its SPAC merger agreement, and announced on Tuesday that it will remain private. The companies did not meet the agreed terms of the agreement, said SPAC Vehicle FinTech Acquisition Corp. and eToro in a joint statement.
The trading volume of Indian crypto exchanges fell by more than 50% after the introduction of a transaction tax. After the 1% tax on crypto transactions came into force on 1 July, large crypto exchanges such as WazirX, CoinDCX and ZebPay saw trading volumes fall sharply, as many had predicted.
Core Scientific sold most of its bitcoin last month. As crypto-miners are forced to abandon their HODL strategies, crypto-mining giant Core Scientific reduced its balance sheet by 79%.
The Bank of England is calling for stricter cryptocurrency regulation. In its latest financial stability report, the Bank of England said that unless the vulnerabilities exposed by the recent cryptocurrency are addressed, cryptocurrencies could pose a “systemic risk” to the traditional financial system.
Nasdaq and the NYSE won a battle with the SEC over market data. The U.S. Court of Appeals in DC found that the SEC exceeded its authority in trying to limit the amount of fees that exchanges may charge over market data.
Overheard
After FTX and Sam Bankman-Fried turned in to save BlockFi and Voyager Digital, the cryptocurrency broker’s CEO suggested others that were worth saving. It prompted another entrepreneur to come up with a metaphor for his decision-making process. “Peaks, but it is FTX that sweeps left or right on distressed assets,” Delphi Digital co-founder Tommy Shaughnessy twitret.
The twins co-founder Cameron Winklevoss wishes crypto Twitter to “relax with TF,” and to «Stop panicking and read on my twitter [b]io as if it were something more than it is. ” He and his brother had changed the bios from just “#bitcoin” to a campaign for their band, Mars Junction.
Jeremy AllaireCEO of Circle, will also have crypto Twitter to relax. He reassured USDC users that his company is doing well, unlike some of its stablecoin-issuing counterparts: “It’s understandable why some users would be paranoid given the history of hucksters in crypto … Circle is in the strongest position it’s ever been in financially.”
Contract flow
NerdWallet buys On The Barrelhead for $ 70 million in cash and $ 50 million in stock. The target is an AI-driven consumer debt advisor, and will help NerdWallet leverage consumer information for its financial guidance, according to NerdWallet CEO Tim Chen.
Built-in personal income tax service April raised a $ 30 million Series A round led by the fintech infrastructure-focused fund Treasury. Nyca Partners, Team8 and QED also participated in the round.
Oakland-based crypto-infrastructure company PolySign raised a $ 53 million Series C round totaling $ 158.2 million. Participants included Brevan Howard Digital, Cowen Digital and GSR.
Entrepreneur First raised $ 158 million in a Series C round funded by individual investors including Stripe co-founders John and Patrick Collison, Reid Hoffman, Tom Blomfield and Matt Mullenweg. The company supports start-up entrepreneurs who are in the earliest stages of idea generation, and helps them match them with suitable co-entrepreneurs.
San Francisco-based company Pave raised $ 100 million in Series C financing in a round led by Index Ventures. The company, which helps customers with benchmarking of compensation, also acquired the HR software and data provider Advanced-HR.
B2B “buy now, pay later” company Hokodo raised $ 40 million in a Series B round led by Notion Capital. The start-up serves European markets. Korelya Capital, Mundi Ventures and Opera Tech Ventures also participated in the round.
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