Crypto hedge fund Three Arrows Capital faces ruin as prices continue to fall

 

Crypto hedge fund Three Arrows Capital is now facing bankruptcy. The fund speculated on several altcoins under overly optimistic assumptions. Assets worth hundreds of millions of dollars have been liquidated, making it difficult to service creditors. The market reacts with red figures.

This week is not easy and pleasant for the crypto industry. But it's not the same for everyone. It's bad for some, worse for others. And then there's Three Arrow Capital (3AC), a mutual fund that's now taking the full hit of the bear claw.

According to a report by The Block , 3AC's future is hanging in the balance after positions in the fund were liquidated by creditors. The magazine cites reliable, but unnamed sources, according to which 3AC is currently in the process of figuring out how to compensate its creditors and investors. According to the reports, a total of $400 million was liquidated.

3AC has invested heavily in cryptocurrencies like Avalanche (AVAX), Polkadot (DOT) , and Eter, which have lost 40-60 percent in value over the past 30 days alone. On the Bitfinex exchange you can see the profits and losses of top traders ; in May 3AC made a loss of more than 30 million dollars. Perhaps this is also due to the fact that the fund was one of the main investors in the completely collapsed cryptocurrency Terra (LUNA) and had placed its trust in Luna2 at the beginning of June.

At its peak, the fund held assets worth more than $10 billion, possibly as much as $20 billion. Zhu Shu, the founder, has meanwhile commented on Twitter.

We are in the process of communicating with the relevant parties and are committed to seeing this through. Unless 3AC has completely failed to siphon off profits, its early investments in Avalanche and Terra should give it the reserves to get out of the mess unscathed. The founder, Zhu Shu, made headlines at the end of 2021 by saying that the “crypto billionaire” was about to buy a very exclusive property in Singapore.

3AC's bankruptcy threatens to cause more waves. Because 3AC has borrowed money from numerous platforms, presumably by depositing its own assets as collateral in order to trade them on the market. Celsius was presumably affected - which may have been a reason for the platform's bankruptcy - BlockFi, Genesis and others. After all, Nexo denies having given a loan to 3AC: “More than two years ago we refused to give 3AC an unsecured loan. But we heard they got it somewhere else.”

There are also deposits in DeFi platforms, where automated liquidation cascades can be used, for example on Aave. In this way, large amounts of ether, tokenized bitcoins and other cryptocurrencies could be forcibly sold.

Only insiders know how far the 3AC interdependencies really go. Likewise, how many assets are still to be liquidated. Therefore, the news tears the already shaky market further into the abyss. Almost all coins lose at least 10 percent in the last 24 hours. Among the top 20 coins, Ethereum (-15.7%), Tron (-18.5%), Avalance (-12.4%) and Polygon (-15.6%) suffer particularly badly - all smart contracts -Coins that 3AC specializes in. They may actually have had massive liquidations, but they may just be out of fear.

At just over $20,000, Bitcoin is just one more tumble from the top of the bubble in late 2017, a magnitude that has mostly bottomed in past market cycles. With a price of just over $1,000, Ethereum is already below the peak of the last bubble. The two leading cryptocurrencies have already lost 70 and 79 percent, respectively , from their all-time highs.

Investors who have bought other coins to all-time highs are suffering much more severely. Cardano , Ripple , Dogecoin , Solana, Polkadot, Shiba Inu , Tron, Avalanche and many more have already lost 85-95 percent. But that, of course, doesn't mean the coins can't lose another 90 percent. Ripple and Cardano have a market cap of around $15 billion, Solana just under $10, Polkadot and Dogecoin more than $5 billion. There's still room down here, plenty of room in fact; if you ask me, each of these coins would be massively overvalued at a billion.

On the other hand, if you think long-term and want to build up a position in Bitcoin or other (sensible) cryptocurrencies, you should be happy about the crash. The summer sale starts early in the crypto market with juicy discounts.

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