Three Arrows Capital (3AC), a prominent crypto hedge fund, defaulted on a loan worth over US$670 million, prompting a steep fall in Bitcoin’s price to below $21,000.
The fund had failed to repay digital asset brokerage Voyager Digital after receiving a loan comprising $350 million in a USD stablecoin, a cryptocurrency pegged to the dollar, and 15,250 Bitcoins, worth a total of around $323 million.
3AC invested in various types of digital assets, including Bitcoin, Ethereum and the original Luna cryptocurrency. However, the cryptocurrency market is currently down significantly. The current overall crypto market cap fluctuates around $950 billion, a significant drop from its all-time high at $3 trillion in November of last year.
Their investment in Luna would also result in significant losses as it fell from around $80 in May to less than a cent.
BlockFi is also said to have liquidated 3AC after it failed to meet margin calls.
As rumours concerning the company’s solvency and investments began to swirl, Su Zhu, chief executive of 3AC, responded “we are in the process of communicating with relevant parties and are fully committed to work this out” on Twitter.
3AC’s default had an immediate impact on the market as a whole. On the same day that Voyager Digital issued the notice to 3AC, Bitcoin’s price steeply fell from $21,239 to $20,716 on June 27.
As one of the largest hedge funds in the crypto sector, there would be further systemic risks to all digital assets markets if they were to remain insolvent. According to the fund’s website, they have borrowed from many major cryptocurrency lenders, including BlockFi, Genesis, Nexo and Celsius.
They have also invested in a number of digital asset-based projects, such as Axie Infinity and KeeperDAO.
Many other crypto financial services are also under stress in the bear market, including Babel Finance and Celsius, which are cryptocurrency lenders that have both halted withdrawals indefinitely until further notice, preventing users from accessing their investments.