Three Arrows Capital liquidations: 3AC hit with huge asset losses

Analysts claim crypto hedge fund lost 60% on 27 key assets and $560m on LUNA collapse

A candle chart showing the price movement of an asset                                 
Analysts are still coming to terms with how the crypto market will react to losses facing Three Arrows Capital – Photo: Shutterstock
                                

The fate of Three Arrows Capital (3AC), one of the world's largest crypto hedge funds, continued to hang in the balance on Monday, as the deadlines for repayment to creditors edged closer. 

A recent analysis by Messari.io of 27 assets that 3AC had invested in suggested that the fund may have lost around 60% of its investment for the year to date. The assets included lead cryptos such as Bitcoin (BTC), Ethereum (ETH), and Avalanche (AVAX).

As a result of the recent crypto market turmoil, a subsidiary of Voyager Digital, a US-based cryptocurrency platform, has said that it may issue a default notice to 3AC if the fund fails to repay its loans. 

Voyager stated that it had loaned 15,250 BTC to 3AC, which is just over $310m (£253m), and $350m (£286m) USD Coin (USDC). Initially, Voyager asked 3AC for the repayment of $25m (£20m) in USDC by 24 June and later requested the entire amount to be repaid by 27 June.

As of Monday morning, there is no evidence that 3AC has repaid the loans and could consequently face default. 

Voyager has discussed what legal action it could take to recover the funds from 3AC. For more about this, read the full report at Currency.com

Voyager bolstered by Bankman-Fried

Voyager has not followed other crypto lenders, such as Celsius Network and Finblox, in halting withdrawals. However, it has reduced its daily withdrawal limit from $25,000 to $10,000. 

The company saw its stock sink by 47% last week as a result of its exposure to 3AC, from CAD1.45 to CAD0.77. The stock has fallen by 94% since the start of the year. 

Although the long-term survival of 3AC remains highly uncertain, Voyager has received a lifeline in the form of a $500m loan from Alameda Research. The company announced that it had borrowed 15,000 Bitcoin from the Hong Kong-based firm founded by Sam Bankman-Fried.

With the onset of the so-called ‘crypto winter’, Bankman-Fried has stepped in on a number of occasions to provide liquidity to embattled cryptocurrenc firms. FTX, the prominent cryptocurrency exchange of which the billionaire is CEO, recently provided a $250m revolving credit facility to embattled crypto lender BlockFi.

Confirming the news, the 30-year old tweeted: “We take our duty seriously to protect the digital asset ecosystem and its customers.”

3AC hit with LUNA losses

In addition to the 27 assets identified by Messari.io, the Twitter account for The Defi Edge reported 3AC had also spent $559.6m buying locked LUNA before the cryptocurrency’s collapse last month. “It's now worth roughly ~$670,” added The Defi Edge.

Danny Yuan, head of trading at crypto trading firm and liquidity provider 8BlockCapital, suggested Three Arrows Capital was “leveraged long everywhere”. 

“What we learned is that they [3AC] were leveraged long everywhere and were getting margin-called,” tweeted Yuan. “Instead of answering the margin calls, they ghosted everyone. The platforms had no choice, but to liquidate their positions, causing the markets to further dump.”

The Starry Night Capital NFTs

The fund was also reportedly starting to consolidate its NFT holdings, in a possible attempt to sell them and cover its losses. It had amassed a large collection of non-fungible tokens (NFTs) last year, such as ones from the Fidenza and Ringers NFT collections, and secured A Poetic Beach by the Chinese digital artist Dabeiyuzhou at Sotheby’s with a $140,000 bid.

In the run up to Wednesday 15 June, the 3AC NFT fund, Starry Night Capital, had reportedly movied its entire collection from the NFT platform SuperRare – a total of 70 NFTs 3AC had spent more than $21m building up since August last year.

Kyle Waters, analyst at CoinMetrics – a cryptomarket analysis firm – said: “All of the [SuperRare] SR works were sent to a single address along with pieces from Art Blocks, KnownOrigin, Foundation, and other crypto art projects.

“The new wallet seems to have some linkage to other 3AC wallets but it’s unclear so far what’s going on (at the worst case, gearing up for some sort of liquidation/OTC block trade of NFTs?)

“It’s also unclear if NFT sales would even move the needle very much versus other positions.”

Further reading

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