Famous cryptocurrency hedge fund Three Arrows Capital has missed a payment on a loan totaling more than $670 million. On Monday morning, the USDC-pegged stable coin and 15,250 bitcoin, valued at around $323 million at the time of writing, were borrowed by the fund, according to a notice from digital asset brokerage Voyager Digital.
The 3AC solvency crisis comes after many weeks of unrest in the cryptocurrency market, which has seen hundreds of billions of dollars worth of value disappear. Although still far from their record highs, bitcoin and ether prices have recently decreased marginally. The global market cap for cryptocurrencies is currently around $950 billion, down from a record of about $3 trillion in November 2021.
Voyager declared it would work toward 3AC recovery (Three Arrows Capital). The broker stressed that the platform is still in use and can process withdrawal requests from customers and fulfill orders. That assurance is probably an effort to ease concerns about spreading over the larger crypto community.
Stephen Ehrlich, CEO of Voyager, stated, “We are aggressively and quickly working to enhance our balance sheet and investigating solutions to continue to meet client liquidity demands.
Voyager reported on Friday that it controlled cryptocurrency assets and had about $137 million in U.S. cash. The business also mentioned that it has access to a revolver with a $200 million cash and USDC limit and a 15,000 bitcoin ($318 million) Alameda Ventures revolver.
The quantitative trading company Alameda, founded by FTX co-founder Sam Bankman-Fried, gave $500 million in funding to the cryptocurrency brokerage Voyager Digital last week. From that line of credit, Voyager has already withdrawn $75 million.
According to the statement, “3AC’s default does not result in a default in the agreement with Alameda.”
Why Did 3AC Arrive Here?
Zhu Su and Kyle Davies founded Three Arrows Capital in 2012. Zhu is well recognized for having an extremely bullish outlook on bitcoin. He predicted that the most prominent cryptocurrency in the world might be worth $2.5 million per coin last year. However, Zhu acknowledged on Twitter that his “supercycle pricing theory was sadly inaccurate” as the cryptocurrency market started to collapse.
Digital currency projects and businesses have all suffered due to the start of a new “crypto winter.”
Three Arrow Capital’s issues seem to have started earlier this month after Zhu tweeted a somewhat cryptic statement stating that the business is “in the process of communicating with key stakeholders” and is “totally dedicated to sorting this out.”The specifics of the problems weren’t followed up on.
But the Financial Times, citing sources familiar with the situation, said after the tweet that American-based crypto lenders BlockFi and Genesis liquidated some of 3AC’s positions. Despite having a loan from BlockFi, 3AC could not make the margin call. 3AC experienced losses as a result of exposure to Luna.