The latest crypto-casualty is Three Arrows Capital.
As recently as March, the company managed around $10 billion in assets, which positioned the firm as among the most prominent crypto hedge funds on the planet.
But now, the company also known as 3AC is headed to bankruptcy court following the steep decline in cryptocurrency prices amid a volatile, risky trading strategy that combined to decimate its assets and leave the firm unable to repay its lenders, according to a report this week from CNBC.
"The chain of pain may just be beginning. 3AC had a lengthy list of counterparties, or companies that had their money wrapped up in the firm’s ability to at least stay afloat. With the crypto market down by more than $1 trillion since April, led by the slide in bitcoin and Ethereum, investors with concentrated bets on firms like 3AC are suffering the consequences," the news site stated.
"Crypto exchange Blockchain.com reportedly faces a $270 million hit on loans to 3AC. Meanwhile, digital asset brokerage Voyager Digital filed for Chapter 11 bankruptcy protection after 3AC couldn't pay back the roughly $670 million it had borrowed from the company. U.S.-based crypto lenders Genesis and BlockFi, crypto derivatives platform BitMEX and crypto exchange FTX are also being hit with losses."
Nic Carter, a partner at Castle Island Ventures, which concentrates primarily on blockchain investments, told the outlet: "Credit is being destroyed and withdrawn, underwriting standards are being tightened, solvency is being tested, so everyone is withdrawing liquidity from crypto lenders."
The strategy employed by Three Arrows involved borrowing funds from around the industry and then turning around and investigating the money in other, often very new, crypto projects. The company was founded about a decade ago, and served to provide the two principals, Zhu Su and Kyle Davies, with some degree of credibility in an industry that was populated with newcomers. Zhu also founded and hosted a popular crypto podcast.
"3AC was supposed to be the adult in the room," Nik Bhatia, a professor of finance and business economics at the University of Southern California, told the outlet.
According to court documents CNBC reviewed, lawyers representing creditors for 3AC claimed that both Zhu and Davies have yet to begin cooperating with them "in any meaningful manner." In addition, the court filing claims that the liquidation process has yet to begin, which means there is no cash on hand as of yet to begin paying lenders back.
Late last month, a court in the British Virgin Islands ordered the liquidation of Singapore-based Three Arrows Capital after rumors about its viability began swirling earlier in the month after the firm attempted to seek a bailout.
"The cryptocurrency firm was hit hard by the collapse of Terra, one of the biggest blockchain projects that completely imploded in early May. According to co-founder Kyle Davies, who has finally spoken out about the hedge fund's financial woes, 3AC's $200 million position in the Luna token evaporated after the prices of the governance token and its sister stablecoin, TerraUSD, crashed to virtually zero," U Today reported.
Still, Davies remains bullish on crypto.
"We have always been believers in crypto and we still are," Davies told The Wall Street Journal in an interview last month. "We are committed to working things out and finding an equitable solution for all our constituents."
He added: "We were not the first to get hit…This has been all part of the same contagion that has affected many other firms."
The crypto boom is going bust and there doesn't appear to be much in the way of halting the collapse.
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