2nd July 2022 > > Three Arrows Capital.

tl;dr

Three Arrows Capital (3AC) files for liquidation.

Market Snap (at time of writing)

Market Wrap

Stocks are enjoying the retracement of10-year rates, but cryptos remain under pressure. See below for more details.

Curious Cryptos’ Commentary – Three Arrows Capital (3AC)

It has been confirmed that 3AC has filed for liquidation in New York.

3AC’s problems started with the Terra fiasco as they had large exposure to LUNA, now called LUNC, which incidentally is up about 100% in the last seven days.

The firm also had a series of leveraged bets and loans in the alt world, held versus ETH as collateral. With the material underperformance of alts vs ETH and BTC in the last couple of months, those positions had been heading towards liquidation. Though some of it has been unwound, that would have been executed with significant losses, eroding the capital base.

To add to its woes, the Monetary Authority of Singapore (MAS) – home to some of the most stringent and reliable regulation over the crypto industry – alleges that 3AC lied to investors and to the regulator itself, opening the way for litigation against the firm by investors.

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There has been an immediate knock-on effect for Voyager Digital, who has credit exposure to 3AC of $50mm and has stated it’s “unable to assess the amount it will be able to recover.”

As of yesterday afternoon, Voyager has suspended all trading, deposits, and withdrawals, despite raising a loan totalling $500m from Alameda last month. Voyager CEO Stephen Ehrlich had this to say:

“This was a tremendously difficult decision, but we believe it is the right one given current market conditions.”

A bit rich blaming all their problems on the current bear market as opposed to blaming the fact they got some investment decisions wrong, proving that though cryptos are a major force for good in the world, they can’t resolve the difficulties of getting some people to take responsibility for their own actions.

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I am not aware the size of the positions remaining on 3AC’s books are public knowledge (I doubt it) but we can be sure as the remainder is unwound, that will put further downward pressure on crypto prices.

That in itself, may cause stress to some other market participants.

Let us hope no-one is dumb enough to promote an algorithmic stablecoin ever again.