In the wake of the industry’s 2022 “crypto winter,” which spiraled into a “cryptopocalyse,” industry watchers were focused on the contagion effect of the various crypto-related bankruptcy filings. In particular, starting with the May 2022 collapse of Terra LUNA and its TerraUSD (UST) stablecoin, many market participants had to halt operations, limit withdrawals, or take emergency bailout loans to survive. The focus quickly turned to the potential ripple effect that could result from an entity’s collapse due to the interconnected nature of the cryptocurrency industry. On January 3, 2023, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), and the Office of the Comptroller of the Currency (“OCC”) issued a joint statement describing the significant volatility and exposure of vulnerabilities in the crypto-asset sector and identified the “Contagion risk within the crypto-asset sector resulting from interconnections among certain crypto-asset participants, including through opaque lending, investing, funding, service, and operational arrangements.” Exemplifying this concern, after FTX, which was at the time one of the largest digital asset exchanges in the world, filed for bankruptcy, parties particularly worried about the impact on other entities in the industry.
In addition, the highly concentrated nature of the digital asset industry created shockwaves in other industries, and was one of the primary causes for the March 2023 banking crisis related to Silicon Valley Bank, Silvergate Bank and Signature Bank, all of which had significant exposure in the digital asset sphere.
As demonstrated by the below-described web of bankruptcy litigation, the interconnected nature of the cryptocurrency market played a significant role in the numerous bankruptcy filings by crypto-related entities. In addition, several of the claims asserted against fellow debtor entities may be the largest sources of recovery in certain of these Chapter 11 cases, which could have a material impact on the distributions to creditors and link together the fates of different debtor entities.
II. Voyager Digital Holdings, Inc.
Voyager Digital Holdings, Inc. (“Voyager”) was the first crypto entity to file for Chapter 11 when it filed in the Southern District of New York on July 5, 2022. Voyager was a cryptocurrency lender and broker that worked with a number of large institutional investors prior to its bankruptcy filing, including hedge fund Three Aarons Capital, Ltd. (“3AC”), which filed for Chapter 15 bankruptcy on July 2, 2022, in connection with its liquidation in the British Virgin Islands. Prior to its bankruptcy filing, 3AC borrowed about $665 million from Voyager. In connection with Voyager’s bankruptcy filing, the company noted that the 3AC loan was one of Voyager’s largest outstanding loans and that “nonpayment of the loan to 3AC, coupled with severe industry headwinds, would strain the Company’s ability to act as a broker for cryptocurrency assets.” Ironically, in response to the liquidity crisis caused by 3AC, Voyager secured an unsecured loan from Alameda Ventures Ltd., an affiliate of FTX, which would later also file for bankruptcy.
While Voyager emerged from bankruptcy on May 19, 2023, the litigation claims with 3AC and Alameda/FTX are its largest open disputes, and will accordingly determine what recovery its creditors will receive. In particular, Voyager’s creditors will receive distributions from any recovery of its $665 million claim against 3AC. In addition, the Voyager plan contemplates a $445 million holdback for the FTX/Alameda litigation, with recoveries estimated between 40% to 64% on their claims, depending on the outcome of the litigation.
III. Celsius Network LLC
Approximately a week after Voyager filed for bankruptcy, Celsius Network LLC and certain of its affiliates (“Celsius”) filed Chapter 11 petitions in bankruptcy court in the Southern District of New York on July 13, 2022. Prior to its filing, Celsius was a cryptocurrency lending platform. Celsius attributed its bankruptcy filing on the “domino-effect” of the crypto industry, including the collapse of 3AC and Voyager. At the time of its bankruptcy filing, Celsius disclosed two loans totaling $75 million to 3AC.
One of Celsius’ largest claims is against Core Scientific (“Core”), a bitcoin miner that itself filed for Chapter 11 in bankruptcy court in the Southern District of Texas on December 21, 2022. Celsius asserted over $312 million of claims related to the parties’ mining rig hosting agreements. The Core debtors objected to Celsius’ claim and the parties have publicly disclosed potential mediation. In addition to highlighting the complex procedural posture of the litigation with two separate Chapter 11 debtors in different jurisdictions and multiple parties-in-interest beyond the respective debtors, the Core creditors committee argued that a final resolution of Celsius’ asserted $300 million claim was increasingly important as the Core debtors head toward plan negotiations, because its treatment has “potentially massive implications” for distributions to unsecured creditors and whether there will be any residual value left for equity.
IV. BlockFi, Inc.
BlockFi, Inc. and eight affiliated debtors (“BlockFi”) filed Chapter 11 petitions in bankruptcy court in the District of New Jersey on November 28, 2022. Prior to its filing, BlockFi was a cryptocurrency trading and lending platform. While BlockFi had no direct exposure to the Celsius and Voyager bankruptcy filings, it disclosed that 3AC was one of BlockFi’s largest borrower clients, and that its collapse led to material losses for BlockFi. Accordingly, BlockFi required an infusion of capital and liquidity to withstand the losses from 3AC and certain other borrowers and to satisfy the increase in customer withdrawals. However, due to the unfavorable market and investor pessimism, BlockFi noted that such attempts were largely unsuccessful. BlockFi was able to secure a loan from FTX US for up to $400 million notional amount of cryptocurrencies but, “[t]he offer imposed steep costs on BlockFi personnel and shareholders.”
In connection with certain loans to Alameda, Alameda’s affiliate Emergent Fidelity Technologies Ltd. (“Emergent”) guaranteed its obligations and pledged to BlockFi all of its shares of Class A Robinhood common stock. In January of 2023, the Department of Justice seized the Robinhood shares and approximately $20 million in cash proceeds. Emergent filed for bankruptcy on February 3, 2023, and its bankruptcy case is being administered jointly with FTX and Alameda. In April 2023, the FTX, BlockFi and Emergent debtors announced an agreement to stay the pending litigation in their respective cases over the Robinhood shares and share sale proceeds pending the conclusion of criminal proceedings against FTX founder Sam Bankman-Fried.
On May 12, 2023, BlockFi filed an amended plan and disclosure statement, which stated that a “primary driver” of customer recoveries will be litigation recoveries from “the entities that defrauded us,” which include FTX and Alameda, 3AC, and Emergent. BlockFi also disclosed that it is contemplating litigation against Core. In its disclosure statement, BlockFi states that successful litigation could yield prospective high-end recoveries of 90%-100% for certain classes of customer and general unsecured claims. In particular, the debtors stated that “[c]ollectively, the success or failure of this litigation . . . will make a difference of in excess of $1 billion to Clients.”
V. FTX Trading, Ltd.
FTX Trading, Ltd. and 101 affiliated debtors (“FTX”) filed Chapter 11 bankruptcy petitions in bankruptcy court in the Southern District of New York on November 11-14, 2022. Prior to its bankruptcy filing, FTX was a cryptocurrency exchange and hedge fund that promoted the liquidity and transacting of coins and tokens, and was the first major cryptocurrency exchange to file bankruptcy. As noted earlier, FTX affiliate Alameda Research offered in June 2022 to provide a $250 million revolving credit facility to bail out crypto trading and lending platform BlockFi, and $500 million in financing to bail out crypto lender Voyager. In addition, FTX was the proposed plan sponsor and purchaser of Voyager’s assets, but that purchase agreement was terminated after FTX’s bankruptcy filing.
On January 30, 2023, FTX sued Voyager in an effort to claw back $445.8 million in loan repayments that FTX made to Voyager before FTX’s bankruptcy filing. After Voyager’s bankruptcy filing in July 2022, FTX alleges that it, on Alameda’s behalf, paid Voyager $248.8 million in September 2022 and $193.9 million in October 2022, as well as a $3.2 million interest payment in August 2022.  As FTX filed for bankruptcy in November 2022, those payments to Voyager are within the 90-day preference period under Bankruptcy Code section 547 and may therefore be clawed back by the debtor FTX to increase the bankruptcy estate available to its creditors.
On April 5, 2023, Judge Wiles approved Voyager’s proposed joint stipulation with FTX and their respective official committees of unsecured creditors. The stipulation contained a framework for resolving certain disputes between the Voyager and FTX estates, including FTX debtor Alameda Research’s contested $75 million loan claim against Voyager and $445.8 million preferential transfer adversary complaint. In sum, the parties stipulated that FTX’s preference claims against Voyager will be adjudicated in FTX’s Chapter 11 case.
VI. Genesis Global Capital, LLC
Genesis Global Capital, LLC and two affiliates (“Genesis”) filed for Chapter 11 in bankruptcy court in the Southern District of New York on January 19, 2023. Prior to its filing, Genesis was a cryptocurrency lender. Genesis disclosed several factors that contributed to its bankruptcy filing, including significant exposure to 3AC and FTX. In addition, Genesis noted the “‘run on the bank’ following FTX Entities’ collapse was outsized and severely impacted [Genesis’] available liquidity.”
On May 3, 2023, FTX moved for relief from the automatic stay in the Genesis bankruptcy in order to commence avoidance actions against Genesis, similar to the action FTX commenced against Voyager. FTX stated that Genesis received avoidable transfers from FTX in the 90-day period prior to the FTX filing, including (i) the repayment of loans to Genesis by Alameda in the aggregate amount of approximately $1.8 billion; (ii) the pledge of collateral by Alameda to Genesis in the aggregate amount of approximately $273 million; and (iii) the withdrawal of assets by Genesis from the FTX.com exchange in the aggregate amount of approximately $1.6 billion. In addition, the FTX debtors stated that they intend to pursue avoidance claims against Genesis nondebtor affiliate, GGC International, for its withdrawal of approximately $213 million from the FTX.com exchange during the preference period. FTX argued that the claims against the Genesis debtors should be adjudicated in a similar manner to FTX’s claims in the Voyager cases.
On June 1, 2023, the Genesis debtors filed a motion to establish procedures and a schedule for estimating the FTX claims against the debtors. FTX debtors filed nine proofs of claim against the Genesis debtors, each asserting various claims totaling over $3.876 billion. According to the Genesis debtors, “the face value of the asserted FTX Claims is more than 250% of the value of the Debtors’ liquid assets and equal to approximately 90% of all scheduled claims against [the debtors] combined.” Accordingly, Genesis asserted that the claims asserted by FTX should be estimated at $0.00 for purposes of voting, allowance and distribution “to avoid undue delay in the timing and amount of creditor distributions, and to expeditiously pursue confirmation of a chapter 11 plan.”
As was feared by many industry participants, including the Federal Reserve, FDIC and OCC, the last 12 months have demonstrated the extensive interconnections among certain crypto-asset participants and the contagion nature of the digital asset industry. The pending bankruptcy cases discussed above, in addition to addressing novel legal issues impacting digital assets, reveal how quickly a troubled entity can spread its distress to other entities in the industry, thereby linking their—and their creditors’—fates.
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 Federal Reserve, FDIC and OCC, Joint Statement on Crypto-Asset Risks to Banking Organizations (January 3, 2023) https://www.fdic.gov/news/press-releases/2023/pr23002a.pdf; see also https://www.debevoisefintechblog.com/2023/01/05/federal-banking-agencies-release-joint-statement-on-crypto-asset-risks-to-banks/.
 Matt Levine, FTX Creates Crypto Contagion, Bloomberg (November 16, 2022) https://www.bloomberg.com/opinion/articles/2022-11-16/ftx-creates-crypto-contagion#xj4y7vzkg; Nina Bambysheva, Javier Paz, Michael del Castillo and Steven Ehrlich, The Looming $62 Billion Crypto Contagion, Forbes (November 14, 2022), https://www.forbes.com/sites/ninabambysheva/2022/11/14/the-looming-62-billion-crypto-contagion/?sh=5f64fe7e61c3;
 See e.g., Cong. Rsch. Serv. Insight, IN12148, The Role of Cryptocurrency in the Failures of Silvergate, Silicon Valley, and Signature Banks (2023); MacKenzie Sigalos, What the failures of Signature, SVB and Silvergate mean for the crypto sector, CNBC (Mar. 12, 2023), https://www.cnbc.com/2023/03/12/signature-svb-silvergate-failures-effects-on-crypto-sector.html.
 In re Voyager Digital Holdings, Inc., et. al., Case No. 22-10943 (MEW) (Bankr. S.D.N.Y. March 10, 2023), Docket 15.
 In re Voyager Digital Holdings, Inc., et. al., Case No. 22-10943 (MEW) (Bankr. S.D.N.Y. March 10, 2023), Docket 1166.
 In re Celsius Network LLC, et al., Case No. 22-10964 (MG) (Bankr. S.D.N.Y. Jul. 14, 2022), Docket 23.
 In re Core Scientific Inc., et. al., Case No. 22-90341 (DRJ) (Bankr. S. D. Tex. May 5, 2023), Docket 861.
 In re Core Scientific Inc., et. al., Case No. 22-90341 (DRJ) (Bankr. S. D. Tex. May 18, 2023), Docket 894.
 In re BlockFi Inc., et al., Case No. 22-19361 (MBK) (Bankr. D.N.J. Nov. 28, 2023), Docket 17.
 In re FTX Trading Ltd., et. al., Case No. 22-11068 (JTD) (Bankr. D. Del. Apr. 11, 2023), Docket 1261.
 In re BlockFi Inc., et al., Case No. 22-19361 (MBK) (Bankr. D.N.J. May 12, 2023), Docket 874 and 875.
 In re BlockFi Inc., et al., Case No. 22-19361 (MBK) (Bankr. D.N.J. May 12, 2023), Docket 874.
 In re FTX Trading Ltd., Adv. Pro. No. 23-50084 (JTD) (Bankr. D. Del. Jan. 30, 2023), Docket 1 at ¶ 5.
 Id. at ¶ 18-22.
 See 11 U.S. C. § 547(b).
 In re Voyager Digital Holdings., et al., Case No. 22-10943 (MEW) (Bankr. S.D.N.Y. April 6, 2023), Docket 1266.
 In re Genesis Global Holdco, LLC, et al, Case No. 23-10063 (SHL) (Bankr. S.D.N.Y. Jan. 20, 2023), Docket 17.
 In re Genesis Global Holdco, LLC., et al., Case No: 23-10063 (SHL) (Bankr. S.D.N.Y. May 3, 2023), Docket 289.
 In re Genesis Global Holdco, LLC., et al., Case No: 23-10063 (SHL) (Bankr. S.D.N.Y. May 3, 2023), Docket 373.
 Id. at ¶ 13.
 Id. at ¶ 18.