Is Three Arrow Capital (3AC) Bankrupt?

The bubble eventually burst after weeks of silence from 3AC.

Voyager Digital said Monday morning that it has issued a default notice on hedge fund Three Arrow Capital (3AC) after the firm failed to repay a loan of 15,250 BTC and 350 million USDC.

Furthermore, Voyager has taken legal action in an attempt to recover the fund it is owed. The company hired Moelis as a financial advisor to reclaim the outstanding debt, according to a news release.

Voyager Digital notified 3AC last week of a debt of 15,250 BTC ($325 million) and 350 million USDC, requesting full repayment by June 27. 3AC made no response to 3AC’s inquiry.

Its Over

Voyager stated that it will continue to conduct business as usual and handle customer withdrawal requests.

On June 19, the company signed a loan agreement with Alameda Research, the market’s top investment fund. This loan assists VOYG in acquiring a floating line of credit to secure customer assets from the ongoing market downturn.

Stephen Ehrlich, Chief Executive Officer of Voyager, said in a statement,

“We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands.”

Su Zhu and Kyle Davies founded hedge fund 3AC in 2012, and it became a well-known name in the crypto industry, having invested in significant projects such as Ethereum, Polkadot Near, Avalanche, Solana, and Terra, among others. Su Zhu is also a supporter of Bitcoin.

No More Doubt

Rumors about 3AC’s default began spreading when the company transferred assets to deposit funds on decentralized financial platforms in order to reduce liquidity risk.

Kyle Davies even stated in a Wall Street Journal interview that they will work through the issue and find a fair solution for all fund members.

However, the co-founder confirmed that LUNA’s collapse impacted 3AC with significant losses because the company had previously invested over $200 million in LUNA tokens in February. The latter loss of the stETH peg brought 3AC closer to bankruptcy.

In addition to Voyager, 8BlocksCapital accused 3AC of skimming $1 million to liquidate margin trading. 3AC also owes the BitMEX exchange at least $6 million.

To date, 3AC has stayed quiet on the allegations and has avoided contact with the parties involved.

According to a Wall Street Journal source, 3AC was working with legal and financial consultants on June 17 to consider asset sale-off after suffering massive losses in its investments.

The Bear is Here

3AC is a top-tier crypto hedge fund and one of the largest borrowers on major lending platforms. In its glory days, the company was valued at $18 billion.

The collapse of 3AC will pose significant economic risks to those acting as lenders. Lenders face a significant gap between the amount owed and the amount received when the collateral is liquidated.

The crypto market crashed, losses outweigh gains, and previously inflated assets became illiquid. BlockFi, Celsius, Nexo, and Genesis are among the existing 3AC lenders.

With the exception of Genesis, the other three names have apparently encountered financial difficulties as a result of the market fall.

After falling as low as $17,600 the previous week, the price of Bitcoin has increased this week, breaching the support level of $20,000, and even exceeding $21,000 at one point during the day.

After a month of poor performance, the market is currently brimming with hope.

The $20,000 mark represents an important level of support. If Bitcoin prices drop below the $20,000 threshold again, it will spark another catastrophic sell-off in the market. Following the 3AC announcement, Bitcoin’s price slightly dropped, and is currently trading around $20,000.

Selling pressure grew in the market following a series of events relating to the financial problems of Celsius, 3AC, and many others.

Bitcoin’s dominance has also declined. On the other hand, these occurrences will serve as an impetus for regulators to consider the establishment of a legal framework for cryptocurrency.