Three Arrows Capital (3AC) faces loan deadline or default

Over the past few weeks, billions of dollars have been wiped from the cryptocurrency market. Companies in the industry feel pain. Lending and trading firms are facing a liquidity crisis and many firms have announced layoffs.

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Cryptocurrency-focused hedge fund Three Arrows Capital must meet the deadline on Monday to repay more than $670 million in loans or face default in an event that could have a ripple effect on the digital asset market.

3AC, as it is also known, is one of the most famous crypto hedge funds and is known for its high leverage bets.

Nose billions of dollars have been wiped from the digital coin market in recent weeksthe hedge fund faces a potential liquidity and solvency problem.

Voyager Digitala digital asset brokerage, said last week that it had loaned 3AC 15,250 bitcoin and $350 million in stablecoin. USDC. At Monday prices, the total loan is over $675 million. Voyager has given Three Arrows Capital until June 24 to repay the $25 million and all outstanding loan by June 27, Monday.

None of those amounts have been returned, Voyager said last week, adding that it could issue a default notice if 3AC did not return the money.

Voyager said it “intends to seek damages from 3AC” and is in talks with its advisors “regarding available remedies”.

Voyager Digital and Three Arrows Capital were not immediately available for comment when contacted by CNBC.

Voyager shares, listed on the Toronto Stock Exchange, are down 94% this year.

How did 3AC get here?

Three Arrows Capital was founded in 2012 by Zhu Su and Kyle Davis.

Zhu is known for his incredibly optimistic view of Bitcoin. He said that last year, the world’s largest cryptocurrency could have been worth $2.5 million per coin. But this May, when the cryptocurrency market started its meltingZhu said on Twitter that his “supercycle price thesis is unfortunately wrong.”

A new so-called “crypto winter” has come. harm projects and companies in the field of digital currency in all directions.

Three Arrow Capital’s troubles appear to have begun earlier this month after Zhu tweeted a rather cryptic message that the company was “in the process of communicating with relevant parties” and “fully committed to resolving this issue.”

There was no further action on specific issues.

But Financial Times reported after the tweet that US crypto lenders BlockFi and Genesis have liquidated some 3AC positions, citing people familiar with the matter. 3AC took out a loan from BlockFi but failed to meet a margin call.

A margin call is a situation in which an investor must allocate more funds to avoid losses on a leveraged trade.

Then the so-called algorithmic stablecoin terraUSD and this sister token moon collapsed.

3AC collided with Luna and suffered losses.

“The Terra-Luna situation took us by surprise,” said 3AC co-founder Davis. Wall Street Journal in an interview earlier this month.

Risk of infection?

Three Arrows Capital is still facing a credit crunch exacerbated by continued pressure on cryptocurrency prices. bitcoin hovered around the $21,000 level on Monday and is down about 53% this year.

Meanwhile, the US Federal Reserve announced further interest rate hikes in an attempt to curb runaway inflation that has knocked steam out of riskier assets.

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

“The issue is that the cost of their [3AC’s] Assets have also declined significantly along with the market, so these are generally not good signs,” Vijay Aiyar, vice president of corporate and international development at crypto exchange Luno, told CNBC.

“It should be investigated if there are any large remaining players who have had contact with them, which could cause further infection.”

Already, a number of crypto firms are facing a liquidity crisis due to the downturn in the market. This month, lending company Celsius, which promised users ultra-high returns for depositing its digital currency, suspended withdrawals for customers, citing “extreme market conditions.”

Another crypto lender, Babel Finance, said this month that it is “facing unusual liquidity pressure” and has put withdrawals on hold.

Abigail Ng of CNBC contributed to this report.