The harder the fall – Bitcoin, queen of all cryptocurrencies, is experiencing a severe bear market. Bogged down, the BTC price failed to recover. Stuck under the $20,000, this hell is turning the investment world upside down. The giants of the cryptographic universe are not spared. In this disaster Three Arrows Capital (3AC), driven by the fall of cryptocurrencies, timidly announced difficulties. They were confirmed last weekend by 8 Blocks, FTX, BitMex and Deribit.
Three Arrows Capital in liquidation hell
Many are the victims of the markets which are liquidate. In crypto jargon, “going liquidated” means losing all of your investment. Trading positions at ” leverage “ wreak havoc. They are one of the risks incurred when engaging in this risky trading exercise. So, now, what is leverage would you tell us?
Let’s admit. We would like to invest in $100 in Bitcoin. We decide to take leverage x10 upwards (we could decide to trade downwards on the same principle). Our trade worth $1,000 if the price of BTC increases. On the other hand, if it drops even 10% of the price, our initial bet evaporates and we lose our investment.
It is also possible to be liquidated with crypto loansoften referred to as lending on DeFi (Decentralized Finance).
Three Arrows Capital is therefore a hedge fund created almost 10 years ago by Su Zhu and Mr. Davies, former classmates. The funds of the company and its clients are then deposited on various centralized platforms and other decentralized ones (FTX, BitMex, etc.). At its peak last April, it still had 3 billion assets under management.
This type of investment fund often uses lending loans and other leverage effects to benefit from juicy returns commensurate with the millions of dollars in crypto assets it manages.
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Bitcoin and cryptocurrencies are falling: it’s time to take stock
At the end of last week, the platforms collaborating with 3AC announced the liquidation of the company’s trading positions. Thus, 5 exchanges leave the ship:
- BlockFi: The liquidation of the positions of 3AC, an important BlockFi client, was announced last Thursday. 3AC appearing to CEO Zac Prince as a “a large client who failed to meet his obligations on an overcollateralized margin loan”. Despite margin calls, 3AC failed to bail out its portfolio.
- BitMex: According to our information, 3AC had $6 million in debt at BitMex. A spokesperson for the company believes that this so-called “collateralised” debt has no impact on the management of the company. The guarantees provided by 3AC to benefit from the loan have been liquidated.
- Deribit : CEO John Jansen confirms that Three Arrows Capital has been a shareholder since 2020 and that he had to liquidate some of the positions of 3AC.
- FTX : The American cryptographic giant did not give more comments concerned with respecting the policy of protection of data and information about its customers.
- Bitfinex: The approach is different on this platform since 3AC was not liquidated. However, the venture capitalist liquidated his positions at a loss.
Beyond the collaborators, the customers of 3AC also look gray. Danny Yuan CEO of 8 Blocks Capital expresses its interrogation in the face of unclear communication and mismanagement of its funds on the part of 3AC which would have resulted in a loss of 1 million dollars. The leader had also requested the freezing of the company’s funds from the crypto platforms collaborating with 3AC.
Three Arrows’ first losing bet was with the Luna Foundation Guard. To put it simply, the LFG is a non-profit organization created by Do Kwon, the founder of TerraUSD. The main mission of the LFG was to maintain the funds, reserves of bitcoins which made it possible to maintain the value of the TerraUSD at 1 dollar.
According to the information we have collected Three Arrows would have invested 200 million dollars in the LFG. This sum went up in smoke when the UST and the LUNA collapsed. We must also not forget that during this cataclysm the LFG just sold Bitcoin to try to stay the course. This solution was obviously not the right one. The fall in the price of Bitcoin took root in this choice, it took with it 3AC.
Beyond the Terra affair, the crux of the problem is therefore in the bitcoin price fall and cryptocurrencies. Indeed, in this period of scarcity, cryptocurrency platforms have tightened the general conditions of their loans. Some lenders then demanded repayment of the latter. For lack of refunds, they were liquidated. The inflationary context which complicates the trend and causes projects to withdraw into themselves.
It would seem that the investment giant Three Arrows Capital, through the voice of its co-founder Davies and that of its lawyer, is studying different options. Asset sales, rescue by another company, it is for the venture capitalist to find common ground with his creditors. Customers are waiting for statements in the face of these rumors of collapse which are confirmed. 3AC is not the only company in difficulty in this delicate context. As a reminder, the platform Celsius still blocks withdrawals and trades for a week.
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