Crypto investors’ confidence is cracking as the latest company collapse shakes the industry.
News that the likelihood of not being able to get all their investment back has struck has struck a new kind of fear into customers of bankrupt broker Voyager Digital Ltd. that was already whipsawed by the sector’s swift downfalling.
Despite steep losses, the crypto traders say they’re holding for the long term and expect prices to rebound. However, for those who trusted Voyager with their retirement savings, down payments and emergency cash, the possibility that their investments might be gone forever is a wakeup call for those who believed large trading platforms offered a form of security.
“This type of downside risk can be pretty brutal,” said Mike Bailey, director of research at FBB Capital Partners. “In some ways, when investors suffer these kinds of losses, similar to when a bond goes to zero, it can feel like the system is broken. In this case, investors may believe an impression that the system has failed, leading to a desire to exit.”
Voyager only filed for bankruptcy and yet many questions remain unanswered. The platform has about $1.3 billion in crypto assets and has made clear in its plan to exit bankruptcy that account holders will be “impaired” by the Chapter 11 process, which means they probably won’t get back all that they’ve invested.
Many crypto traders who can still pull their money off platforms are doing so quickly. According to Glassnode, the total balance on exchanges has fallen more than 20% from a Jan 20 high. Meanwhile, on-chain activity for Bitcoin had dropped a total of 13% in early July from the peak in November.
For many crypto traders, watching the value of their holdings fall occasionally, is to be expected. Losing that investment altogether is almost incomprehensible.
“After a reconciliation and fraud prevention process” is completed, Voyager said that those with US dollar deposits will be able to reclaim that money but Twam isn’t optimistic.
“It’s definitely a lesson learned that you have to do your diligence,” he said. “It’s so easy to get lured in, but you have to read the small print.”