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Voyager Digital is the latest crypto firm to experience a short squeeze with VGX tokens surging despite Voyager’s bankruptcy filing.
Crypto lending platform Voyager Digital saw its native token VGX ascend by a sharp threefold increase in three days on the back of a short squeeze. VGX has surged by a massive 257% since Tuesday when it was still trading at $0.14. As of press time, the token is changing hands at $0.50 and even hit a high of $1.01 in the last 24 hours.
In light of this development, CK Cheung, investment analyst at Defiance Capital, has made an interesting observation. According to Cheung, the short squeeze is becoming synonymous with cash-strapped crypto businesses, including Voyager Digital. The crypto broker recently filed for Chapter 11 bankruptcy protection, becoming the latest casualty of the financial downturn pervading the crypto space. In Cheung’s words:
“Pumping coins of insolvent businesses seem to be becoming a meta. Similar pumps happened to Terra’s LUNC token and Celsius’ CEL token, mostly because of a short squeeze.”
A short squeeze refers to a sharp rally triggered by unwinding bearish positions. This phenomenon also comes to bear when several sellers rush in to realize profits accrued.
Recap of Events Leading Up to Voyager Digital Short Squeeze
As token values slide and riskier assets face bleak economic conditions, more bankrupt businesses are prone to short squeezes. Assets like VGX have been caught up in a protracted downtrend fueled by extremely bearish investor disposition. Thus, when an asset like VGX becomes severely shorted, the minor price increase often forces traders to give up on their positions. These traders subsequently look to cash in while they still can, and make away with substantial profits. However, this pattern also invariably applies upward pressure on prices and results in a dramatically exaggerated move.
VGX began the week at a $0.14 low, a staggering 97% from its $5.81 high last November. The crypto market underperformance and subsequent bankruptcy filings could be responsible for impacting VGX.
Following its agonizing decision to declare bankruptcy, Voyager’s proposed restructuring plan may have triggered the short squeeze. Over half of the crypto broker’s loan book consisted of loans to now-insolvent hedge fund Three Arrows Capital (3AC).
As part of its restructuring plan, Voyager customers are eligible for a pro-rata share of four different assets. These include funds recovered from Three Arrows, existing VGX tokens, shares in the reconstituted company, as well as any other digital currencies.
However, Voyager chief executive Steve Ehrlich clarified the firm’s given repayment structure on Monday. According to Ehrlich, the exact amount accruable to customers would depend on “what happens in the restructuring process and the recovery of 3AC assets.”
Meanwhile, a separate CNBC report revealed that a New York bankruptcy judge has frozen Three Arrows’ assets. This comes even as the co-founders of the embattled company remain in hiding from angry creditors.