Embattled crypto asset manager and custodian Eqonex will delist its bitcoin exchange-traded note (ETN) after failing to replace its now closed in-house custodian.
The Eqonex Bitcoin ETN (EQ1B) will undergo a mandatory redemption and delist from the Deutsche Boerse on 14 December after launching five months ago.
The decision follows a month of financial difficulty and a “painful inflection point” for the firm following the collapse of the FTX Exchange and its FTT token.
Losses resulting from the market volatility meant Eqonex was unable to meet its loan repayment obligations to creditors such as Bifinity, the payments of arm of Binance, which meant future loan payments were halted.
After failing to secure new equity financing, Eqonex said in a shareholder letter on 21 November “our runway and ability to continue driving our operational roadmap was severely compromised”.
The firm has filed with the High Court of Singapore to go into judicial management and put its businesses, Diginex and Eqonex Capital, into voluntary liquidation to pay creditors.
Eqonex also announced its custody arm Digivault, which was the wallet provider for EQ1B, would wind down its operations by 7 December.
The firm previously said it would seek a buyer to recapitalise the business or find an “alternative solution”, however, both efforts have proven unsuccessful.
It added client assets would “remain safe and available for withdrawal” until 7 December.
EQ1B’s security trustee, Apex Corporate Trustees, said in a filing on 1 December it had asked to withdraw assets from Digivault and seek a new custodian prior to the wind-down date but had not received a reply from Eqonex.
Apex also noted uncertainty over what Digivault’s wind-down would mean for its ability to enforce security over investors’ digital assets, or whether it would be able to withdraw client assets if the ETN’s issuer or custodian went into default.
Laurent Kssis, crypto ETP specialist at CEC Capital, previously told ETF Stream: “Eqonex noteholders will fall part of a call option by the issuer and its collateral agent and the latter will redeem the units and return any proceeds minus a fee, to sell the underlying assets, back to the noteholders.
“This will be a decent litmus test that the ETN structure functions and does exactly what it is supposed to do. Again, the collateral agent is a guarantor to the noteholders and will trigger the procedure to redeem the ETN back into cash to noteholders.”
Eqonex’s decision to shutter its maiden ETN comes only a week after Bitpanda said it would close its crypto exchange-traded product (ETP) range to focus on its core business given the “realities of the market”.