Three Arrows Capital was unable to meet the demands of lenders to cut back on additional funds after digital currency betting worsened, putting prominent crypto hedge funds in jeopardy when the credit crunch struck the industry. rice field.
Last weekend, the group was unable to respond to margin calls, making the group the latest victim of a sharp drop in the prices of many tokens, such as Bitcoin and ether, which are spilling over the market. Based in Singapore, Three Arrows is one of the largest and most active players in the cryptocurrency industry, investing in its entire lending and trading platform.
Lenders have significantly tightened the amount of credit offered following the sway over the past month. Celsius, a major crypto financial services company I was blocked Withdrawal last week, two major tokens collapsed in May.
BlockFi, a US-based cryptocurrency lender, was one of the groups that liquidated at least some of its Three Arrows positions. So, according to people familiar with the matter, they reduced their exposure by using the collateral that the fund put in to support borrowing.
Three Arrows, who made a “strategic” investment in BlockFi in 2020, said people were borrowing Bitcoin from lenders, but couldn’t answer the margin call. One said the liquidation was done with mutual consent.
“We’re in the process of communicating with stakeholders and we’re working hard to resolve this,” said Three Arrows co-founder SuZhu on Twitter Wednesday without identifying anyone. Said. The company did not respond to requests for comment.
Yuri Mushkin, Chief Risk Officer of BlockFi, said: .. .. We believe that this counterparty is one of the first to take action. “
He added that BlockFi held collateral that exceeded the size of the loan.
“BlockFi’s careful and proactive risk management is for the benefit of a broad customer base and enables us to continue our business in times of market stress,” says Mushkin.
The problem with Three Arrows has bounced back to Finblox, a platform that offers traders an annual yield of 90% to lend cryptocurrencies. Backed by venture capitalist Sequoia Capital and invested by Three Arrows, Finblocks cut its withdrawal limit by two-thirds late Thursday, London time, due to hedge fund conditions.
Run by Zhu and his co-founder Kyle Davies, Three Arrows is known for its bullish leveraged bets on cryptocurrencies. Zhu supported the “super cycle” view of cryptography. Increasing mainstream adoption means that prices will continue to rise without returning to the short-term bear market.
Last month he admitted that the current sale proved his mistake. “Unfortunately the price theory of the super cycle was wrong, but cryptocurrencies are still prosperous and change the world every day,” Zhu tweeted in late May.
“They were really big and really lively. They got some huge positions,” said David Siemer, CEO of Digital Asset Manager Wave Financial. He added that the major cryptocurrency companies across the universe were probably exposed to three arrows: “They worked with everyone.”
According to industry sources, Three Arrows mainly managed the capital of Zhu and Davies, if not exclusively. One person who spoke to the manager in the last few months said the total amount of the fund was said to be $ 4 billion. Blockchain analytics firm Nansen has previously estimated the fund’s assets at $ 10 billion.
Another person working for a crypto trading company said they couldn’t reach Three Arrows lately. “They aren’t reacting to anyone,” they said.
Among the big bets on the Three Arrows was luna, the sister token of the algorithm Stablecoin Terra. Both collapsed in May and went to zero. This is a market disruption event that has turned what cryptocurrency prices have been steadily declining over the months into a more dramatic defeat.
The fund owns a variety of crypto ventures with poor token performance in recent months, including Avalanche, Solana and the game Axie Infinity, all down about 90% from their November peak.
According to FactSet data, Three Arrows was also the largest investor in the unit of Grayscale Bitcoin Trust GBTC. GBTC is currently offering a 30% discount on Bitcoin prices as the US Securities and Exchange Commission has so far refused to approve Bitcoin as an exchange-traded fund open to private investors. It is being traded.
Until early 2021, GBTC Trading at premium To the price of Bitcoin. This provided arbitrage opportunities for funds like Three Arrows, which could borrow Bitcoin and deposit it in grayscale in exchange for GBTC units to make a profit and sell in the open market. Grayscale does not allow the redemption of the underlying Bitcoin GBTC.
According to the final report to the SEC in January 2021, Three Arrows owned nearly 39 million units of GBTC at the end of 2020 and was worth $ 1.2 billion. The same position today is valued at only $ 550 million.
Grayscale CEO Michael Sonnenshain said he was unaware of the Three Arrows deal, but added: .. .. The main price modification is to send shock waves through the ecosystem. “
