US$10 billion Crypto hedge fund Three Arrows in Singapore fails to meet lender margin calls

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Fortune/Financial Times

17th June 2022 – (Singapore) According to Fortune, after US$400 million in liquidations, a major hedge fund in the space, Singapore-based Three Arrows Capital, or 3AC, is reportedly facing insolvency, and many dominos look likely to fall next.

3AC’s lenders continue to come forward as the fund, which managed US$10 billion in assets in March, according to blockchain analytics firm Nansen, fails to meet margin calls and liquidates its cryptocurrency holdings, adding more downward pressure on the beleaguered market.

There were “some major shifts in [3AC’s] positions” early in the week, Andrew Thurman, content lead and analyst at leading blockchain data firm Nansen, told Fortune on Tuesday. “I don’t want to comment on what that might mean for their health, but it’s clear that they’re reshuffling major portions of their holdings.”

As rumours began to swirl of possible insolvency, 3AC cofounder Su Zhu was initially silent, then seemed to acknowledge the turbulence on Tuesday, tweeting, “We are in the process of communicating with relevant parties and fully committed to working this out.”

According to Financial Times, Three Arrows Capital failed to meet demands from lenders to stump up extra funds after its digital currency bets turned sour, tipping the prominent crypto hedge fund into a crisis that comes as a credit crunch grips the industry. The group’s failure to meet margin calls this past weekend makes the group the latest victim of an acute fall in the prices of many tokens such as bitcoin and ether that is rippling across the market. Singapore-based Three Arrows is among the biggest and most active players in the crypto industry with investments across lending and trading platforms. Lenders have sharply tightened up how much credit is on offer following tremors over the past month.

Celsius, a major crypto financial services company, blocked withdrawals last week, while a pair of major tokens collapsed in May. US-based crypto lender BlockFi was among the groups that liquidated at least some of Three Arrows’s positions, meaning it reduced its exposure by taking collateral the fund had put down to back its borrowing, according to people familiar with the matter. Three Arrows, which made a “strategic” investment in BlockFi in 2020 that it exited the following year, had borrowed bitcoin from the lender, the people said, but had been unable to meet a margin call. One of the people said the liquidation had occurred by mutual consent. “We are in the process of communicating with relevant parties and fully committed to working this out,” said Su Zhu, Three Arrows co-founder, on Twitter on Wednesday, without specifically identifying any counterparty. The company did not respond to a request for comment.

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