Voyager Bankruptcy Is Latest Sign Of Crypto Consolidation


Hello and welcome to Protocol Fintech. This Wednesday: Crypto consolidation, Atlanta fintech hub and SPAC deal canceled by eToro.

out of the chain

Why do governments still bother to use crypto for payments? It’s clearly a prank, as Bloomberg reports on Colorado and Utah programs to accept bitcoin and other virtual currency shows. Here’s how it works: Governments contract with a service provider to convert crypto to cash, and then governments receive cash payment of taxes due. (The service provider bears the risk of price volatility.) So what’s the point, compared to just the taxpayer selling their crypto, since they’ll have to pay taxes on the appreciation anyway? “Many states want to signal that they are industry-friendly,” Samuel Armes, president of the Florida Blockchain Business Association, told Bloomberg. Ah. So it’s kind of like New York City Mayor Eric Adams depositing his cash salary directly into a Coinbase account and buying crypto so he can claim to be “paid in bitcoin.” Is anyone actually buying these crypto performative stunts?

—Owen Thomas (E-mail | Twitter)

Crypto consolidation has arrived

The crypto juggernaut has suddenly hit a wall. A once fast-growing industry finds itself in consolidation mode as the value of crypto, shrunk by more than two-thirds, falls below $1 trillion. There’s no getting around it: it’s been messy.

Over the past few weeks, crypto companies have announced major job cuts. Some DeFi lenders that have attracted clients with high yields have now suspended withdrawals as they struggle to stay afloat. Many of these crypto-converts are now rushing to the exits as company after company has revealed a surprising degree of exposure to the growing number of struggling gamers.

Crypto is in the grip of a severe liquidity crunch. The contagion sparked by the collapse of UST-luna has spread as other crypto companies struggle to stay solvent.

  • Companies Denying Customer Access to Their Crypto Accounts: Voyager Digital, Celsius, and Vault are among those who have suspended withdrawals. CoinDesk Columnist Frances Coppola called it “a race to exchange cryptocurrencies against the few real dollars still available”.
  • Some crypto companies have scrambled to secure additional funding to deal with the crisis. BlockFi secured a $400 million credit facility from FTX, while digital travel signed a revolving line of credit with Alameda Research worth $200 million and 15,000 bitcoins.
  • But no amount of money can save some crypto players. FTX CEO Sam Bankman-Fried, which also runs Alameda, told Forbes that “some third-tier exchanges” are “already secretly insolvent” and are “fundamentally too far.” Regulators seemed to agree: Crypto hedge fund Three Arrows Capital was ordered into liquidation. And Voyager voluntarily filed for bankruptcy on Tuesday.

The industry is rapidly shrinking. As the crypto market lost $2 trillion in the past seven months, major crypto players like Coinbase, Crypto.com, BlockFi, and Gemini announced layoffs. Others are considering more drastic measures.

  • BlockFi’s funding deal included a deal that gave FTX an option to buy the crypto lender for up to $240 million.
  • The wave of mergers and acquisitions is also sweeping up smaller crypto players. Vauld, which halted withdrawals after clients withdrew around $198 million, agreed to be acquired by Nexo.
  • CoinShares acquires crypto asset manager Napoleon Asset Management, while Canadian crypto firm WonderFi purchased the Coinberry crypto trading service.

“This is a perfect storm that will cause consolidation throughout space,” Logan Allin, founder and managing partner of Fin Venture Capital, told Protocol. Bitcoin IRA co-founder Chris Kline said the process will separate “healthy businesses” from “overstretched and overleveraged.” The process may be inevitable, but the pain is unenviable.

—Benjamin Pimentel (E-mail | Twitter)

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on the money

On protocol: Looking for fintech talent? Try Atlanta, where decades of payments history has spawned an often-overlooked industrial hub.

EToro canceled its SPAC merger deal, announcing on Tuesday that it would remain private. The companies failed to meet agreed-upon terms for the deal, the SPAC FinTech Acquisition Corp said. and eToro in a joint statement.

Indian crypto exchange trading volumes have dropped by more than 50% following the imposition of a transaction tax. After the 1% crypto transaction tax went into effect on July 1, major crypto exchanges like WazirX, CoinDCX, and ZebPay saw trading volumes to fall suddenly, 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 bitcoin on its balance sheet by 79%.

Bank of England calls for tougher crypto regulation. In its latest financial stability report, the UK central bank said that unless the vulnerabilities exposed by the recent crypto crash are addressed, crypto could pose “systemic risks” to the mainstream financial system.

The Nasdaq and NYSE have won a battle with the SEC over market data. The United States Court of Appeals in DC found that the SEC overstepped its authority by trying to limit the amount of fees exchanges can charge on market data.

Understood

After FTX and Sam Bankman Fried rushed to rescue BlockFi and digital travel, the CEO of the crypto broker suggested that others are worth picking up. This prompted another entrepreneur to offer a metaphor for his decision-making process. “Tinder, but it’s FTX swiping left or right on distressed assets,” Digital Delphi co-founder Tommy Shaughnessy tweeted.

Gemini co-founder Cameron Winklevoss wanna crypto twitter for “Relax TF,” and to “Stop freaking out and read my Twitter [b]io as if it were something more than it is. He and his brother had changed their bios from just “#bitcoin” to promoting their band, Mars Junction.

Jeremy AllaireCEO of Circle, would also like crypto Twitter to cool down. He reassured USDC users say his company is doing well, unlike some of its stablecoin-issuing peers: “It’s understandable that some users are paranoid given the history of crypto peddlers…Circle is in the strongest position it’s ever been in financially.”

Deal flow

NerdWallet acquires On The Barrelhead for $70 million in cash and $50 million in stock. Target is an AI-powered consumer debt advisor and will help NerdWallet leverage consumer insights for financial advice, according to NerdWallet CEO Tim Chen.

Integrated Personal Income Tax Service April raised a $30 million Series A round led by the fintech infrastructure-focused fund, the Treasury. Nyca Partners, Team8 and QED also participated in the round.

PolySign, an Oakland-based crypto infrastructure company raised a $53 million Series C round for a total valuation of $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 startup founders who are in the early stages of idea generation and helps connect them with suitable co-founders.

Pave, a San Francisco-based company raised $100 million in Series C funding in a round led by Index Ventures. The company, which helps clients assess compensation, also acquired HR software and data provider Advanced-HR.

B2B company “buy now, pay later” Hokodo raised $40 million in a Series B round led by Notion Capital. The startup serves European markets. Korelya Capital, Mundi Ventures and Opera Tech Ventures also participated in the round.

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