Cryptocurrencies
Market participants are currently facing unprecedented volatility in this rapidly evolving sector. Several recent high-profile insolvencies have sent shockwaves through the digital asset space, in which the implications for restructuring remain largely unchartered territory.
With the rise in popularity of cryptocurrencies now reaching millions of retail customers and with the majority of digital asset firms operating via opaque off-shore corporate structures, identifying, tracing and securing digital assets has become a primary focus for advisors, particularly within insolvencies.
Furthermore, the regulatory and political landscape continues to evolve and, given recent market failures, it is expected that the sector will face increasingly stringent regulation which will pose operational and financial challenges for incumbent market participants.
Teneo's global footprint and partnerships with external crypto specialists ensure that we can offer our clients unrivaled support across all key international financial centers, including offshore jurisdictions. As an independent firm, we are able to move swiftly and engage stakeholders to preserve value in times of uncertainty.
Key Sector Challenges
Stakeholder Communications
The sector is characterized by a highly active stakeholder base utilizing new and evolving communications platforms. This has necessitated real-time analytics to assess significant volumes of unstructured public data.
Unfavorable media coverage has been noted as a key driver of recent bankruptcies, particularly with respect to the perception of companies’ financial position.
Regulatory & Public Affairs
Given recent market events, there is now a heightened level of regulatory scrutiny across the globe. This is coupled with a lack of conformity across international regulations, creating a highly complex regulatory operating environment.
Increased regulatory scrutiny has translated into larger and more frequent fines across the sector.
It is likely that certain market operators will face increasingly stringent capital requirements as regulators seek to protect investors, reducing available market liquidity at a time of heightened volatility.
Governance
Many of the existing firms operating in the sector utilize decentralized governance structures, limiting director accountability and facilitating poor operational controls.
Poor governance, or the lack of internal controls, has been a feature of all the recent insolvencies. Firms operating in the sector are now seeking to improve internal controls in order to provide confidence in their financial viability.
Restructuring & Insolvencies
Given the nascent nature of the industry, there are material jurisdictional variances in insolvency legislation, including key areas covering the identification of digital assets ownership and the distribution of digital asset proceeds.
Developing a restructuring strategy can be complex and reflects the high levels of uncertainty driven by digital asset price volatility, systemic risks (e.g., regulatory), disparate geographic ownership/operating structures and the difficulty in tracing formal legal title of assets.
Poor governance and internal controls have facilitated many of the recent restructures/insolvencies in the sector. This has also created a highly challenging environment for external advisors assisting stakeholders to identify a clear financial picture of the situation.
Liquidity Management
The recent market volatility and high-profile corporate failures have ushered in a material reduction in liquidity within the sector, both in terms of the digital asset volumes traded and capital investment in crypto-focused companies.
The fall in digital asset values and continued volatility have seen some borrowers struggle to provide sufficient collateral for existing loans or obtain new loans to provide liquidity.
Furthermore, regulatory uncertainty in the short-term is deterring funders from increasing their exposure to the sector at a time of heightened liquidity requirements.
Tracing & Accessing Value
Given the decentralized nature of the crypto sector, external stakeholders, particularly in insolvencies, are finding it highly challenging to identify assets and establish a chain of ownership.
Specialist on-chain & cross-chain investigative tracing capabilities have become increasingly important for stakeholders to assist in mapping out relevant digital assets and liabilities.
Once the digital assets have been traced, ensuring these remain secure from external expropriation requires increasingly sophisticated technology and the usage of “cold storage” wallets.
How We Support You
Liability Management
We lead clients through periods of uncertainty when they are experiencing financial, operational and/or regulatory stress.
Our senior-led team works with clients to identify options and implement solutions to stabilize the company’s capital structure, protect value and establish a path to recovery or a structured route to exit.
Interim Management
We have extensive experience operating and advising in distressed situations working hands-on with senior management to navigate complex problems. The company’s leadership is able to focus on critical operational issues while Teneo assists across a broad spectrum of requirements. We draw on sector specialist knowledge, including managing divers and competing stakeholder groups, planning and implementing a turnaround plan and structuring funding solutions.
We are skilled in executing at-pace and often work with imperfect data while delivering under compressed timelines.
Contingency Planning
The rapidly evolving crypto sector and its highly interdependent financing arrangements mean that stakeholders face an increasingly challenging landscape – contingency planning can help to provide downside protection.
We have significant experience in advising stakeholders through the contingency-planning processes to establish a fallback position which can deliver superior outcomes and recoveries for stakeholders.
Fiduciary Oversight
Insolvency processes differ by jurisdiction and can either be light-touch to affect a transaction or more comprehensive, including the responsibility for the running and direction of a company.
Our global network of qualified professionals has extensive experience in undertaking complex, cross-jurisdictional bankruptcies and insolvencies, determining options for the rescue of a company or maximizing the value of the assets to repay the liabilities of a business.
Technical & Infrastructure Capabilities
We have established external partnerships to complement our in-house crypto expertise, allowing us to provide an extensive range of services to clients. Through a partnership with Chainalysis, a market-leading international blockchain investigation and monitoring firm, we are able to provide asset tracing for our clients. We have also partnered with a qualified custodian, backed by industry-leading insurance, to provide digital asset support and multi-venue liquidity.
Case Studies
Three Arrows Capital, Ltd. (“3AC”)
Our Mandate
3AC is an insolvent investment fund under a traditional Master-Feeder structure registered in the British Virgin Islands and focused on the crypto/digital asset space with c.$3bn of creditors.
Russell Crumpler and Chris Farmer were appointed as liquidators of 3AC by order of the BVI court to conduct an orderly and equitable wind-down of the Company; with a duty to protect, collect and realize its assets for the benefit of all its creditors.
We are also providing communications support with respect to the company’s website, media relations and on the record corrections.
Teneo Approach
Upon their appointment, the liquidators have control of the management and affairs of 3AC. The liquidators have been working with various stakeholders and other interested parties to unwind 3AC’s complex business model, which focused principally on the borrowing and investment of funds to trade in crypto-related markets and products.
To aid in that process, a creditors committee has been established to both work with the liquidators and to represent the interests of the creditor body as a whole through the insolvency process.
Results
Our work with the Company and its various stakeholders is ongoing.
Advisor to a government agency
Our Mandate
Teneo has been engaged to assist a government department in taking possession/control of and effecting a realization for certain crypto assets related to a specific mandate.
Teneo Approach
Teneo, through its network of local and global contacts, has been working with an exchange to identify relevant crypto assets and to effect the transfer of those assets to our control for conversion to fiat.
Results
Our work with the relevant agency remains ongoing.
