Three Arrows Capital has filed for bankruptcy in the United States, highlighting the scope and scope of the prominent crypto-investment company’s lending across the industry before it collapsed in liquidation this week.
The Chapter 15 bankruptcy filing in Manhattan’s federal court late Friday came just days after the Three Arrows were forced into liquidation in the British Virgin Islands, following allegations that they failed to pay the $ 80 million it owed to digital asset exchange Deribit. The US bankruptcy petition was filed to authorize lawyers appointed to lead the liquidation of the Three Arrows in the British Virgin Islands, the legal seat of the Singapore-based fund, to protect its US assets.
The failure of Three Arrows, which used loans to turbo-charge its bets on cryptocurrencies, is the latest sign of how this year̵[ads1]7;s turmoil in the digital asset markets has seriously eroded some of the industry’s biggest players. It also highlights how problems in one company can ricochet across the sector due to opaque links between investors, crypto exchanges and lending companies.
Insolvency specialists at Teneo, the British Virgin Islands consulting firm to liquidate the Three Arrows, told the US court that a “significant number of creditors” are expected to make claims against the hedge fund.
Deribit, a derivatives-focused crypto-trading platform, had started liquidation proceedings in the British Virgin Islands last week, with Three Arrows later agreeing to put itself in liquidation. However, Three Arrows is also in arbitration in New York with one of its largest creditors, Russell Crumpler, one of the firm’s liquidators, said in a US lawsuit.
“With many creditors seeking to enforce their rights to collect on the debtor’s outstanding debt obligations, the risk increased that the debtor would lose his assets regardless of each lender’s ability to recover the losses,” Crumpler said.
As a sign of the scale of Three Arrows’ loans, Toronto-listed cryptocurrency lender Voyager Digital said in late June that they could lose more than $ 650 million in loans they gave to the crypto-investment company founded by Su Zhu and Kyle Davies. Voyager said late Friday that it was suspending withdrawals and trading on its platform while exploring “strategic options”. It added that it “actively pursues all available remedies for recovery from Three Arrows”.
BlockFi, another major cryptocurrency lender, said Friday that they had lost about $ 80 million due to the collapse of the Three Arrows, even after it wound up some of its positions. BlockFi on Friday also announced an agreement where FTX will give it new financing in return for an alternative that allows the crypto exchange to buy the group for up to 240 million dollars.
Three Arrows is also facing regulatory scrutiny in Singapore. The Monetary Authority of Singapore this week reprimanded the group for providing false information and breach of an asset below the management threshold. Authorities in the city state said they had been investigating Three Arrows for a year. The fund was first managed in Singapore before moving to the British Virgin Islands in September.
The Three Arrows became prominent below the height of the crypto-bull market, which peaked in November 2021. Zhu presented a “superbike” mission in which increasing mainstream adoption meant that prices would continue to rise without falling back into a short-term bear market. But as investors have run away from speculative assets this year, the crypto market has come under intense pressure. The market value of the top 500 crypto tokens has collapsed from a peak in November of $ 3.2tn to below $ 1tn.
Three Arrows did not respond to a request for comment on the liquidation. Zhu said on Twitter last month, “We are in the process of communicating with relevant parties and are fully committed to resolving this.”
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