Cryptos: The difficulties of the Three Arrows Capital fund raise fears for the worst for the sector

The questioning of the solvency of this fund at 10 billion dollars added to the uncertainties on the Celsius lending platform raise fears of a devastating domino effect on the ecosystem of cryptoassets.

The cryptocurrency winter is tough for many players. In the space of a few months, two billion in capitalization have gone up in smoke, and the prices of bitcoin or Ether are struggling to stabilize. All eyes are now on hedge fund Three Arrow Capital. This giant finances with its 10 billion dollars a good part of the crypto ecosystem. He has invested in many companies in the sector, but also a lot in the “stablecoinTerra which collapsed last May. According to the specialized media The Block, the fund is dangerously approaching insolvency. He allegedly liquidated $400 million worth of Ether to avoid bankruptcy. And sold a few stakes.

The Celsius lending platform is also in serious trouble. It this week suspended the ability of its 1.7 million customers to withdraw or transfer their cryptocurrencies, after finding themselves too exposed to plummeting cryptoassets.

Over the past two years, several companies but also governments have included cryptoassets in their treasury. Tokens often acquired for a price higher than the current price. The website bitcointreasuries.net lists several dozen such as Tesla, Square, Fidelity, El Salvador… All of them are making capital losses.

At the end of April, Tesla, Elon Musk’s company explained in a financial document that it had kept all of its 43,000 bitcoins purchased a year earlier for 1.5 billion dollars. They are only worth 940 million, or 560 million “lossespotential. The company has not yet commented on this situation.

In its last quarterly report, the company already showed a loss of 100 million dollars. In company accounts, cryptocurrencies are considered “intangible assets with an indefinite useful life in accordance with the applicable accounting rules“says Tesla. “Therefore, any decrease in their fair value below their carrying value at any time after their acquisition will require us to record impairment charges, while we will not be able to make any upward revisions for any increase in the market price until at a sale“. The question of the management of these cryptocurrencies will be asked to them during their next quarterly results.

Microstrategy, a billion losses

For Tesla, bitcoin’s fall is unpleasant but negligible. Cryptocurrency only represents a tiny portion of his portfolio. Conversely, the software publisher Microstrategy has bet everything on this currency. It holds 129,218 tokens purchased at various amounts, totaling $3.9 billion. At the current rate, they are only worth 2.8 billion, more than a billion “lossespotential. In March, the company borrowed $205 million from crypto bank Silvergate. These funds were used to buy more bitcoins, with collateral holdings…more bitcoins.

In May, the company’s chief financial officer indicated that if bitcoin fell below $21,000 – as it did on June 15 – he would be forced to initiate a margin call. This is a situation where a company must request more funds to avoid running out of cash. CEO Michael Saylor told CNBC that he did not have to borrow new funds.

MicroStrategy is a very special case. They repeated several times that they would not sell. For its CEO, it is more a matter of conviction“, explains Alexandre Stachchenko, blockchain and cryptocurrency analyst at KPMG. For Michael Saylor, it is indeed unthinkable to liquidate his bitcoins. He has regularly shown his love for this token. On his Twitter account, he regularly preaches with messages like “bitcoin is the solution to chaos” or, “in bitcoin we trust“, a reference to “in god we trust“, the national motto of the United States.

No one knows how far prices could fall. Changpeng Zhao, co-founder and CEO of the Binance exchange, expects a prolonged price decline. If he sees in this new crypto winter an opportunity for his company to make new acquisitions at attractive prices, as he explains in an interview with Fortunehis personal fortune potentially shrunk by 90% between January and June 2022, according to the Bloomberg Billionaires Index.

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Cryptos: The difficulties of the Three Arrows Capital fund raise fears for the worst for the sector


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