Bitcoin hit a record high of around $69,000 at the height of the crypto craze in 2021. In 2022, it was shifted in the opposite direction.
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Leading crypto hedge fund Three Arrows Capital has defaulted on over $670 million in loans. Digital asset broker Voyager Digital issued a note Monday morning saying the fund had failed to make a $350 million loan in US dollar-denominated stablecoins, USDC, and 15,250 bitcoins valued at approximately $323 million at today’s prices. dollars is.
3AC’s solvency crisis comes after weeks of turmoil in the crypto market that wiped out hundreds of billions of dollars in value. Bitcoin and Ether are both trading slightly lower over the past 24 hours, despite being far from their all-time highs. Meanwhile, the total crypto market cap is around $950 billion, down from around $3 trillion at its peak in November 2021.
Voyager said it wants to recover from 3AC (Three Arrows Capital). Meanwhile, the broker stressed that the platform is still working and fulfilling client orders and withdrawals. This assurance could be an attempt to contain fears of infection from the broader crypto ecosystem.
Voyager CEO Stefan Ehrlich said, “We are working diligently and quickly to strengthen our balance sheet and pursue options so we can continue to meet our customers’ liquidity needs.”
On Friday, Voyager said it had about $137 million in crypto assets. The company also noted that it has access to a $200 million cash and USDC turret and a 15,000 bitcoin turret ($318 million) from Alameda Ventures.
Last week, Almeida (FTX founder Sam Bankman-Fried’s quantitative trading firm) pledged $500 million in funding to Voyager Digital, a crypto brokerage. Voyager has already drawn $75 million from this line of credit.
“3AC’s failure to do so does not constitute a breach of the agreement with Alameda,” the statement said.
CNBC did not immediately receive comment from 3AC.
How did 3AC get here?
Three Arrows Capital was founded in 2012 by Zhu Su and Kyle Davis.
Zhu is known for being incredibly bullish on Bitcoin. Last year, the world’s largest cryptocurrency could cost $2.5 million per coin, he added. But in May of this year, as the crypto market began to collapse, Zhu said on Twitter that his “supercycle value thesis was unfortunately wrong.”
The start of a new so-called “crypto winter” has hurt digital currency projects and businesses across the board.
Three Arrows Capital’s troubles surfaced earlier this month when Zhu tweeted a cryptic message that the company was “in the process of communicating with relevant parties” and “fully interested in working on it.”
It was not followed up on what the specific problems were.
But the Financial Times reported after the tweet that US-based crypto lenders BlockFi and Genesis deleted some of 3AC’s posts, citing people familiar with the matter. 3AC had borrowed from BlockFi but failed to meet the margin call.
A margin call is a position where an investor must pay more money to avoid a loss on a trade using borrowed money.
Then the so-called algorithmic stablecoin TeraUSD and its sister token Luna collapsed.
3AC was in contact with Luna and sustained damage.
“We are very upset about the situation at Terra-Luna,” Davis, co-founder of 3AC, said in an interview with The Wall Street Journal earlier this month.
Risk of infection?
Three Arrows Capital is still facing a credit crunch made worse by the ongoing pressure on cryptocurrency prices. Bitcoin hovered around $21,000 on Monday and is down about 53% this year.
Meanwhile, the US Federal Reserve has largely signaled further rate hikes to curb inflation, leaving riskier assets outdated.
3AC, one of the largest crypto hedge funds, has borrowed large sums of money from various companies and invested in several different digital asset projects. This has raised fears of further contagion across the industry.
“The point is that their value [3AC’s] The asset has also fallen sharply with the market, so overall not a good sign,” Vijay Iyer, vice president of corporate development and international at crypto exchange Luno, told CNBC.
“It remains to be seen if there are older, remaining players who have been in contact with them, which could later lead to contagion.”
Many crypto firms are already facing liquidity shortages due to the market downturn. This month, lending company Celsius, which promised users extremely high returns on depositing its digital currency, halted withdrawals for customers, citing “extreme market conditions.”
Another crypto lender, Babel Finance, said this month that it was facing “unusual liquidity pressures” and halted withdrawals.
— CNBC’s Ryan Brown contributed to this report.