Singapore-based hedge fund Three Arrows Capital (3AC) has become the latest victim of credit lenders’ belt-tightening after it failed to meet margin calls and saw some of its positions liquidated last weekend.
The fall in crypto prices across the board has seen lenders dramatically reduce the amount of credit they’re willing to offer, and the famously bullish company’s failure to provide an injection of extra funds means it’s now struggling to cover its losses.
Among the lenders reported to have liquidated 3AC assets is US-based BlockFi. As reported by the Financial Times (FT), according to sources close to the matter, the company “reduced its exposure by taking collateral the fund had put down to back its borrowing.”
Three Arrows reportedly made a “strategic investment” in BlockFi two years ago, borrowing bitcoin from the lender but exited 12 months later.
It remains unclear what collateral 3AC posted for its loans, however, rumors online suggest that shares in Grayscale Bitcoin Trust (GBTC) are in fact what it’s been borrowing against.
It is also reported to have seen positions liquidated by exchanges Deribit, FTX, and BitMEX, and reportedly owes the latter somewhere in the region of $6 million.
In response to these most recent claims, 3AC co-founder Su Zhu said via Twitter: “We are in the process of communicating with relevant parties and fully committed to working this out.”
On Thursday, BlockFi CEO Zac Prince also posted a tweet believed to refer directly to its action against 3AC.
There’s ‘bullish’ then there’s ‘Three Arrows bullish’
Three Arrows and its co-founders Zhu and Kyle Davies have traditionally been incredibly bullish on crypto. As recently as last April, Zhu was touting bitcoin as potentially “one of the key reserve currencies of people and nations,” and before that hyping Dogecoin due to it being easy to understand for “blue-collar traders.”
However, this ‘go big or go home’ approach has this time seemingly left the firm high and dry.
“They were really big and really active. They went into some enormous positions,” Wave Financial chief David Siemer told FT.
The fund has also put its faith in recent months in a number of tokens that have faired terribly.
These have, as detailed by FT, included Solana, Axie Infinity, Avalanche, and Luna, which went down the tubes in May, taking much of the market with it.
Finally, 3AC was one of the major investors in Grayscale Bitcoin Trust, last year disclosing ownership of more than 38 million shares.
Unfortunately with GBTC currently trading at a more than 30% discount to bitcoin, if it still holds all these shares, the position will have lost around $785 million to date.
It remains to be seen if 3AC will be able to ride out the latest waves caused by the crashing crypto market, but as Zhu himself so wisely said back in November last year, “Those who do not manage their risk will have the market manage it for them.”