The Crypto Industry Is Trying To Bail Itself Out. It Might Not Be Enough.

Like banks in 2008, crypto firms are finding the failure of a few key players could bring the entire edifice crashing down. Unlike banks, crypto only has itself to look to for a bailout. That might not be enough.

The stock of digital assets brokerage Voyager Digital (ticker: CA:VOYG) cratered more than 60% on Wednesday after the firm said it may issue a default notice to a crypto-focused hedge fund called Three Arrows Capital. The drop put the company’s share price, at 62 Canadian cents (48 cents), about 98% below its November peak.

Voyager said its exposure to the hedge fund consists of 15,250 Bitcoin — currently worth about $315 million — as well as $350 million in a U.S. Dollar stablecoin. At a total of about $665 million, the loan would be about seven times the size of Voyager’s current market value.

Along with that disclosure, Voyager said it secured a line of credit from Alameda Ventures Ltd., worth about $510 million, to meet is liquidity demands.

The announcement was just the most recent from crypto firms trying to fortify each other. On Tuesday, crypto lending firm BlockFi said it had signed a term sheet for a $250 million revolving credit facility from exchange FTX. In confirming the move, FTX founder Sam Bankman-Fried, who also started Alameda, said, “We take our duty seriously to protect the digital asset ecosystem and its customers.”

Last week, crypto lending firm Nexo AG offered to buy some of the assets of competitor Celsius Network, after that firm suffered a liquidity crunch and froze customer withdrawals.

Nexo co-founder Antoni Trenchev said the current situation is akin to the 1907 bank panic. During that crisis, which preceded the Federal Reserve, J.P. Morgan and some partners famously organized to provide liquidity to failing financial firms and prevent a larger meltdown.

“Those bankers that were solvent, that were prudent, that were still liquid came about and self-regulated, cleaned up and consolidated the space, out of which grew the next wave of the dominant players of the next era,” said Trenchev, in a streaming event with customers on Tuesday.

The problem in crypto is that it’s unclear whether the industry has the cash on hand and commitment to stop the bleeding. In a research note on Wednesday, analysts with Compass Point Research & Trading said Voyager’s disclosure “raises survivability questions” and that Voyager customers could rush to pull assets from the firm. Voyager didn’t respond to a request for comment.