Three Arrows Capital, a crypto hedge fund, defaulted on a $ 665 million loan
Voyager said it intends to recover the funds, which were lent as $ 15,250 bitcoin and $ 350 million in stablecoin USDC, a digital token whose value is linked to the dollar.
“We work hard and fast to strengthen our balance sheet and pursue alternatives so that we can continue to meet customer liquidity requirements,” said Stephen Ehrlich, CEO of Voyager.
The company said this in discussions with advisers to review legal remedies.
Three Arrows Capital did not immediately respond to a request for comment.
The loan default comes at a dangerous moment for cryptocurrencies, as industry players and investors prepare for a “cryptocurrency winter” after a price crash and abrupt layoffs, and in the midst of a renewed and courageous sense of skepticism that has boiled over to condemnation among critics and market observers. The industry’s high degree of interconnection has also flashed warning signs. Many companies borrow from and invest in each other, and the risk for investors is exacerbated because the failure of one institution can be passed on to others.
Across the industry, investors have endured staggering losses. Bitcoin, the most prominent cryptocurrency, traded around $ 20,700 on Monday, well below the November high of about $ 69,000. Meanwhile, the market value of all cryptocurrencies was just under $ 1 trillion; Seven months ago, that number approached $ 3 trillion.
Although older financial markets have also become acidic in recent months – due to fears of an impending recession, historically high inflation, prolonged supply shocks triggered by the pandemic, and the war in Ukraine – the decline of the cryptocurrency world has been far more severe than Wall Streets. . The S&P 500, which is widely regarded as a measure of financial performance over time, has fallen 18 percent so far this year.
The depth of bitcoin’s decline highlights the very volatile nature of cryptocurrencies and how such astonishing growth as launched portfolios against the sky can just as easily turn around.
Three Arrows Capital was created in 2012 by Su Zhu and Kyle Davies, and is known for its bullish moves on crypto. Zhu had taken the position that the value of cryptocurrencies would continue to rise as more people invested in it and its use became more mainstream. But he recently admitted he was wrong, saying on Twitter in May that his award statement was “regrettably wrong”, adding, “but crypto will still thrive and change the world every day.”
In a subsequent tweet earlier this month, Zhu’s tone became more terrible. “We are in the process of communicating with relevant parties and are fully committed to resolving this,” he said, without explicitly stating what the problem was or who the relevant parties were. Reports of financial distress soon followed.
Days after Zhu’s cryptic tweet, the Financial Times reported that Three Arrows Capital had failed to meet lenders’ demands to show extra funds after digital currency investments went awry.
The loan default follows a decision by the controversial cryptocurrency bank Celsius to stop withdrawals from its almost 2 million users, sending shockwaves through the crypto market and underlining concerns that the sector’s biggest name lacks meaningful financial supervision. However, the possibility of disruptions flowing to the larger economy seems limited.
Extensive theft has also plagued crypto investors, drawing growing skepticism from critics who question the lasting economic vulnerabilities of digital currencies.
Last week, blockchain company Harmony announced that hackers had seized about $ 100 million in cryptocurrencies by exploiting the company’s Ethereum and Binance Chain bridges. Blockchain acts as a decentralized ledger, an overview of transactions that are publicly available and verifiable, but not maintained by a device. A blockchain bridge acts as a means of decentralized transfers between general ledgers.
As the value and popularity of tokens has increased in recent years, so has the sinister interest among criminals. Crypto-related crime reached a record high of $ 14 billion last year, according to research from Chainalysis, up from $ 7.8 billion in 2020.
Although many first-time investors have flocked to the promises of digital currencies and their sometimes staggering returns, the market has changed to a far more pessimistic attitude.
As interest rates rise and a number of financial difficulties drag down high-flying companies, investors have also fled speculative assets such as cryptocurrencies. Some of the biggest players in the industry, including Coinbase and Gemini, have eliminated positions and frozen employment, reflecting the icy mood that now defines the once glowing market.
