Billions of dollars have been wiped out of the cryptocurrency market in recent weeks. Companies in the industry are feeling the pain. Lending and trading companies are facing a liquidity crisis and many companies have announced layoffs.
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Three Arrows Capital, a crypto-focused hedge fund, has to meet a deadline on Monday to pay off more than $670 million in loans or face default, in a case that could have a ripple effect across the asset market. digital.
3AC, as it is also known, is one of the most prominent crypto hedge funds and is known for its highly leveraged bets.
But with Billions of dollars removed from the digital currency market in recent weeksthe hedge fund faces a potential liquidity and solvency problem.
digital travelera digital asset brokerage, said last week that it had lent 3AC 15,250 bitcoins and 350 million of the stablecoin USDC. At Monday prices, the total loan equates to more than $675 million. Voyager gave Three Arrows Capital until June 24 to pay USD25 million and the entire outstanding loan by Monday, June 27.
None of these amounts have been refunded, Voyager said last week, adding that it can issue a notice of default if 3AC doesn’t return the money.
Voyager said it “intends to pursue the recovery of 3AC” and is speaking with advisers “about available legal remedies.”
Voyager Digital and Three Arrows Capital were not immediately available for comment when contacted by CNBC.
Voyager, which is listed on the Toronto Stock Exchange, has seen its shares fall 94% this year.
How did 3AC get here?
Three Arrows Capital was established in 2012 by Zhu Su and Kyle Davies.
Zhu is known for his incredibly optimistic view of bitcoin. He said that last year, the world’s largest cryptocurrency could be worth $2.5 million per coin. But in May this year, as the crypto market began its collapseZhu said on Twitter that his “supercycle price thesis was woefully wrong.”
The start of a new so-called “crypto winter” has hurt digital currency projects and businesses across the board.
Three Arrow Capital’s troubles appeared to begin earlier this month after Zhu tweeted a rather cryptic message that the company is “in the process of communicating with relevant parties” and is “fully committed to resolving this.”
There was no follow-up on what the specific problems were.
But financial times reported after the tweet that US-based crypto lenders BlockFi and Genesis liquidated some of 3AC’s positions, citing people familiar with the matter. 3AC had borrowed from BlockFi but was unable to meet the margin call.
A margin call is a situation where an investor has to commit more funds to avoid losses on a trade made with borrowed money.
So he the so-called terraUSD algorithmic stablecoin forks moon sister token collapsed.
3AC was exposed to Luna and suffered losses.
“The Terra-Luna situation caught us off guard,” 3AC co-founder Davies told Wall Street Journal in an interview earlier this month.
Contagion risk?
Three Arrows Capital is still facing a credit crunch exacerbated by continued pressure on cryptocurrency prices. Bitcoin it hovered around the $21,000 level on Monday and is down 53% this year.
Meanwhile, the US Federal Reserve has signaled further interest rate hikes in a bid to rein in runaway inflation, which has sapped riskier assets.
3AC, which is one of the largest crypto-focused hedge funds, has borrowed large sums of money from various companies and invested in several different digital asset projects. That has sparked fears of further contagion throughout the industry.
“The point is that the value of your [3AC’s] assets have also massively declined with the market, so these are generally not good signs,” Vijay Ayyar, vice president of corporate and international development at crypto exchange Luno, told CNBC.
“What remains to be seen is if there are any big players left who have been exposed to them, which could cause further contagion.”
Several crypto companies are already facing liquidity crises due to the market crash. This month, lending firm Celsius, which has promised users super-high returns for depositing its digital currency, halted withdrawals for customers, citing “extreme market conditions.”
Another crypto lender, Babel Finance, said this month that it “faces unusual liquidity pressures” and halted withdrawals.
– CNBC’s Abigail Ng contributed to this report.
