Three Arrows Capital crypto hedge fund defaults on Voyager loans

Prominent crypto hedge fund Three Arrows Capital has defaulted on a loan worth more than $ 670 million. Digital assets brokerage house Voyager Digital issued a warning Monday morning, saying the fund failed to repay a $ 350 million loan in the US dollar-denominated stack coin, USDC, and $ 15,250 bitcoin, worth around $ 323 million at current prices.

3AC’s solidity crisis comes after weeks of turmoil in the crypto market, which has wiped out hundreds of billions of dollars in value. Bitcoin and ether have both traded slightly lower over the last 24 hours, although they are far from their all-time highs. Meanwhile, the total market value of crypto is around 950 billion dollars, down from around 3 trillion dollars at the top in November 2021.

Voyager said it intends to pursue recovery from 3AC (Three Arrows Capital). Meanwhile, the broker emphasized that the platform continues to work and fulfill customer orders and withdrawals. This insurance is probably an attempt to limit fears of infection through the broader crypto ecosystem.

“We are working hard and fast to strengthen our balance sheet and pursue alternatives so that we can continue to meet customer liquidity requirements,” said Voyager CEO Stephen Ehrlich.

As of Friday, Voyager said it had about $ 137 million in US dollars and owned cryptocurrencies. The company also noted that it has access to a $ 200 million cash and USDC revolver, as well as a 15,000 bitcoin ($ 318 million) revolver from Alameda Ventures.

Last week, Alameda (FTX founder Sam Bankman-Peace’s quantitative trading firm) committed $ 500 million in financing to Voyager Digital, a cryptocurrency brokerage house. Voyager has already deducted $ 75 million from this credit line.

“The breach of 3AC does not lead to breach of the agreement with Alameda,” the statement said.

CNBC did not immediately receive a comment from 3AC.

Three Arrows Capital was established in 2012 by Zhu Su and Kyle Davies.

Zhu is known for his incredibly bullish view of bitcoin. He said last year that the world’s largest cryptocurrency could be worth $ 2.5 million per coin. But in May this year, when the crypto market began its merger, Zhu said on Twitter that his “superbike price thesis was unfortunately wrong.”

The beginning of a new so-called “crypto winter” has damaged digital currency projects and companies across the board.

Three Arrow Capital’s problems 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”.

The specific problems were not followed up.

But the Financial Times reported after the tweet that US-based crypto borrowers BlockFi and Genesis liquidated some of 3AC’s positions, citing people familiar with the matter. 3AC had borrowed from BlockFi, but failed to meet the margin requirement.

A margin call is a situation where an investor must commit to more funds to avoid losses on a trade made with borrowed cash.

Then the so-called algorithmic stablecoin terraUSD and its sister token luna collapsed.

3AC had exposure to Luna and suffered losses.

“The Terra-Luna situation took us very seriously,” 3AC founder Davies told the Wall Street Journal in an interview earlier this month.

Three Arrows Capital continues to face a credit crunch exacerbated by continued pressure on cryptocurrency prices. Bitcoin hovered around the $ 21,000 level on Monday and is down around 53% this year.

Meanwhile, the US Federal Reserve has signaled further interest rate hikes in an attempt to control sharp inflation, which has taken the steam out of more risky assets.

3AC, which is one of the largest cryptocurrency-focused hedge funds, has borrowed large sums of money from various companies and invested across a number of different digital asset projects. This has triggered fears of further infection in the industry.

“The problem is that the value of their [3AC’s] “Assets have also fallen sharply with the market, so all in all, there are no good signs,” Vijay Ayyar, vice president of corporate development and internationally at the Luno crypto exchange, told CNBC.

“What is to be seen is whether there are any large, remaining players who have been exposed to them, which could cause further infection.”

A number of crypto companies are already facing liquidity crises due to the market downturn. This month, the lending company Celsius, which promised users super-high returns for depositing its digital currency, stopped withdrawals for customers, citing “extreme market conditions”.

Another cryptocurrency lender, Babel Finance, said this month that it was “facing unusual liquidity pressures” and stopped withdrawing.

CNBC’s Ryan Browne contributed to this report.