December 8, 2022

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Three Arrows Capital is liquidated after the cryptocurrency crash

Three Arrows Capital is liquidated after the cryptocurrency crash
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Three Arrows Capital plunged deeper into the financial turmoil on Wednesday after a British Virgin Islands court ordered a crypto-focused hedge fund to liquidate after it failed to pay creditors as bitcoin and other cryptocurrencies plummeted in value.

The liquidation order follows a high-profile default notice: On Monday, crypto brokerage Voyager Digital announced that Three Arrows Capital had not made required payments for a loan worth more than $665 million, partially paid in bitcoin.

Two senior members of global consulting firm Teneo have been appointed by the court to help manage the liquidation, according to a person familiar with the matter who spoke on condition of anonymity because they are not authorized to discuss the process publicly. In the coming days, Teneo will have a website that will allow potential creditors of Three Arrows Capital to file claims and receive more information about the insolvency, the person said.

Hedge fund Crypto Three Arrows Capital in default of $665 million loan

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

The mounting financial turmoil represents the latest setback for the crypto industry. Faced with collapsing token prices, sudden layoffs, pundits and a hyperinflationary economy that has forced the Federal Reserve to aggressively raise interest rates, the sector is in the grip of a harsh “crypto winter.”

Sky News first reported the news of the liquidation order on Wednesday.

Created in 2012 by Su Zhu and Kyle Davies, Three Arrows Capital is known for its bullish moves on cryptocurrencies. But signs of trouble surfaced in May when Sue publicly admitted that his thesis on the rise in cryptocurrency prices was “unfortunately wrong.” Then, in a vague tweet earlier this month, he said, “We are in the process of communicating with interested parties and are fully committed to working on this,” without providing relevant details. Days later, it was financial times It reported that Three Arrows Capital failed to meet lenders’ demands to show additional funds after its cryptocurrency bets went bankrupt.

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Davis told the Wall Street Journal earlier this month, before the cryptocurrency markets suffered the latest crash, that the company claimed $3 billion in assets under management.

The high level of interdependence in the industry has also raised alarm bells. Many companies borrow from each other and invest in each other, which magnifies the risks for investors because the potential failure of one crypto company could force others to collapse.

Cryptocurrency investors have suffered amazing losses in recent months. Bitcoin, the most prominent cryptocurrency, has been hovering near $20,000 – and briefly pulled back from that limit on Wednesday – and has shed more than two-thirds of its value since it peaked near $69,000 in November. And while the total market for all cryptocurrencies was close to $3 trillion last year, it has since fallen to less than $1 trillion.

The staggering losses have caught the attention of political leaders and regulators, who have raised concerns about the lack of financial oversight and investor protection in the sector. Earlier this month, Celsius Network, a cryptocurrency bank, Started to stop withdrawals by nearly two million depositors due to what it called “extreme market conditions”. Since then, securities regulators in at least five states have launched investigations into the bank’s operations.

The sharp downturn in the cryptocurrency world coincides with a tense mood on Wall Street, as the S&P 500 has shed about 20 percent of its value this year and many observers are preparing for a possible recession. Investors adjust to aggressive moves by the Federal Reserve to cool the economy, and flee speculative assets for safer bets. Historically high inflation and the war in Ukraine are also putting pressure on consumers and global supply chains, all adding to a harsher economic environment, in sharp contrast to the glut that launched old cryptocurrencies and financial markets to new highs last year.

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