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Crypto hedge fund Three Arrows Capital plunges into liquidation

Billions of dollars of value have been wiped from the cryptocurrency market over the past few weeks. Companies in the sector are feeling the pain. Lending and trading companies are facing a liquidity crunch and many companies have announced layoffs.

Yu Chun Christopher Wong | S3studio | Getty Images

Leading cryptocurrency hedge fund Three Arrows Capital has gone into liquidation, a person with knowledge of the matter told CNBC, marking one of the biggest casualties of the past so-called “crypto winter.”

Teneo was recruited in recent days to handle the liquidation process, said the person, who requested anonymity because he was not authorized to discuss the matter publicly.

Sky News first reported the story of the liquidation.

Three Arrows Capital, or 3AC as it is also known, did not respond to a request for comment when contacted by CNBC.

Teneo is in the very early stages of the liquidation process, the person said. The restructuring company is taking steps to realize the assets 3AC has, then it will set up a website in a day or two with instructions on how creditors can get in touch to make claims, the source added. .

3AC, co-founded by Zhu Su and Kyle Davies, is one of the largest crypto hedge funds (which focus on investing in digital assets like cryptocurrencies) and is known for its high leverage bets. the sink. Zhu has extremely optimistic views on bitcoin.

But a crash in digital currency prices, which has seen billions of dollars disappear from the market in recent weeks, has hurt 3AC and exposed a liquidity crunch within the company.

On Monday, 3AC defaulted on a loan from Voyager Digital consisting of $350 million in the U.S. dollar-pegged stablecoin, USDC, and 15,250 bitcoins, worth around $304.5 million at prices of today.

3AC was exposed to collapsed algorithmic stablecoin terraUSD and sister token luna.

The Financial Times reported earlier this month that US-based crypto lenders BlockFi and Genesis had 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 must commit more funds to avoid losses on a trade made with borrowed money.

3AC’s unwinding has sparked fears of contagion to parts of the market that could potentially be exposed to the company.

Other cryptocurrency companies have also faced liquidity issues. Lending company Celsius and cryptocurrency exchange CoinFlex were forced to suspend withdrawals for customers, both citing “extreme market conditions“.

CoinFlex, however, had another problem with a customer failing to repay a $47 million debt, creating a liquidity problem for the company.