Crypto Hedge Fund Three Arrows Capital Defaults on $650 Million Loan

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Crypto broker Voyager Digital issued a notice of default to hedge fund Three Arrows Capital on Monday for failing to make required payments on a loan worth more than $650 million, the latest sign of financial turmoil that rocked the cryptocurrency world as the value of tokens on the market plummeted.

Voyager said it intended to recover the funds, which were loaned out in the form of 15,250 bitcoins and $350 million in the USDC stablecoin, a digital token whose value is pegged to the dollar.

“We are working diligently and quickly to strengthen our balance sheet and seek options so that we can continue to meet customer demands for liquidity,” said Stephen Ehrlich, chief executive of Voyager.

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The company said so in discussions with advisers to consider legal remedies.

Three Arrows Capital did not immediately respond to a request for comment.

The default comes at a perilous time for cryptocurrencies, as industry players and investors brace for “crypto winter,” following a crash in prices, layoffs abrupt and with a renewed and emboldened skepticism that has boiled over into condemnation from critics and market watchers.

Across the industry, investors suffered huge losses. Bitcoin, the top cryptocurrency, was trading near $20,700 on Monday, well below its November peak of around $69,000. Meanwhile, the market value of all cryptocurrencies was just below $1 trillion; seven months ago, that figure approached $3 trillion.

Although legacy financial markets have also turned sour in recent months – on fears of a coming recession, historically high inflation, lingering pandemic-triggered supply shocks and war in Ukraine – the descent of the crypto world has been much more severe than that of Wall Street. . The S&P 500, widely considered a benchmark of financial performance over time, has fallen 18% so far this year.

The depth of bitcoin’s decline highlights the highly volatile nature of cryptocurrencies and how such stunning growth that has launched wallets skyward can just as easily reverse.

Three Arrows Capital was established in 2012 by Zhu Su and Kyle Davies, and is known for its bullish moves in crypto. Zhu had taken the position that the value of cryptocurrencies would continue to rise as more people invested in it and its use became more common. But he recently admitted he was wrong, saying on Twitter in May that his price thesis was “sadly wrong,” adding, “but crypto will continue to thrive and change the world every day.”

In a subsequent tweet earlier this month, Zhu’s tone became more serious. “We are in the process of communicating with the affected parties and we are fully committed to resolving this issue,” he said, without explicitly saying what the problem was or who the affected parties were. Reports of financial distress soon followed.

Days after Zhu’s cryptic tweet, the Financial Times reported that Three Arrows Capital had failed to respond to requests from lenders to show additional funds after its digital currency bets went bad.

The rampant theft has also plagued crypto investors, sparking growing skepticism from critics who question the continued financial vulnerabilities of digital currencies.

Last week, blockchain company Harmony announced that hackers had seized around $100 million in cryptocurrency by exploiting the company’s Ethereum and Binance Chain bridge. The blockchain operates as a decentralized ledger, a publicly accessible and verifiable record of transactions, but not maintained by a single entity. A blockchain bridge works as a means of decentralized transfers between ledgers.

As the value and popularity of tokens have increased in recent years, nefarious interest from criminals has also increased. Crypto-related crime hit a new all-time high of $14 billion last year, according to research by Chainalysis, up from $7.8 billion in 2020.

Although many new investors have flocked to the promise of digital currencies and their sometimes staggering returns, the market has shifted to a much more pessimistic posture.

As interest rates rise and a series of economic difficulties have resulted in high-flying companies, investors have also fled speculative assets, like cryptocurrencies. Some of the biggest players in the industry, including Coinbase and Gemini, have cut jobs and frozen hiring, reflecting the frosty mood that now defines the once-hot market.

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Crypto Hedge Fund Three Arrows Capital Defaults on $650 Million Loan


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