As reported by CNBC, major crypto hedge fund Three Arrows Capital has defaulted on a loan worth more than $670 million in the latest disaster for the new-age currency, even as Bitcoin and other prominent cryptos continue shedding their value.
"Digital asset brokerage Voyager Digital issued a notice on Monday morning, stating that the fund failed to repay a loan of $350 million in the U.S. dollar-pegged stablecoin, USDC, and 15,250 bitcoin, worth about $323 million at today’s prices," the outlet reported.
"3AC’s solvency crunch comes after weeks of turmoil in the crypto market, which has erased hundreds of billions of dollars in value. Bitcoin and ether are both trading slightly lower in the last 24 hours, though well off their all-time highs," the report continued, adding: "Meanwhile, the overall crypto market cap sits at about $950 billion, down from around $3 trillion at its peak in Nov. 2021."
Officials at Voyager said that the company is planning to pursue recovery from 3AC (Three Arrows Capital), but in the meantime, the brokerage firm made clear the platform remains in operation and is able to fulfill customer orders and withdrawals, CNBC noted. But that reassurance is most likely a public relations campaign aimed at limiting fear that the collapse will now spread to other cryptos and the wider ecosystem where they exist.
“We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands,” noted Voyager CEO Stephen Ehrlich.
The report adds:
As of Friday, Voyager said it had approximately $137 million in U.S. dollars and owned crypto assets. The company also noted that it has access to a $200 million cash and USDC revolver, as well as a 15,000 bitcoin ($318 million) revolver from Alameda Ventures.
Last week, Alameda (FTX founder Sam Bankman-Fried’s quantitative trading firm) committed $500 million in financing to Voyager Digital, a crypto brokerage. Voyager has already pulled $75 million from that line of credit.
“The default of 3AC does not cause a default in the agreement with Alameda,” said the statement.
Three Arrows Capital was established by Zhu Su and Kyle Davies in 2012. The former is known to be significantly bullish in his views about bitcoin. Last year he claimed the world's largest crypto may be worth around $2.5 million per coin, but in May as the crypto market began to tank in Biden's economy, he announced on Twitter that his "supercycle price thesis was regrettably wrong."
The recent onset of what has been dubbed a "crypto winter" has significantly harmed digital currency projects and firms across a broad spectrum. Three Arrow Capital's issues appeared to begin earlier this month when Zhu posted a somewhat cryptic message that his company was "in the process of communicating with relevant parties" and is "fully committed to working this out."
He never did follow up and list any specific issues, however.
However, following the tweet, the Financial Times reported that U.S.-based crypto lenders BlockFi and Genesis liquidated some of 3AC's positions, quoting sources who were familiar with the matter. The firm had borrowed capital from BlockFi but was not able to meet the margin call, CNBC reported. That is a situation where an investor has to commit more funds in order to avoid losses on a trade that was made with borrowed money.
“The issue is that the value of their [3AC’s] assets as well has declined massively with the market, so all in all, not good signs,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.
“What’s to be seen is whether there are any large, remaining players that had exposure to them, which could cause further contagion.”