Updated: 1 month
Crypto-hedge fund Three Arrows Capital has been facing financial problems for several weeks. It invested in Terra (LUNA), and when this token collapsed it did not have enough money left. But it had not yet sold all its holdings. Now the court has ruled that it must.
3AC must sell bitcoin
So writes Sky News, which has heard that consultancy firm Teneo wants to help with the sales. Three Arrows Capital, or ‘3AC’ for short, was found to have a lot of debt, and has therefore been forced to sell. It is not clear which investors will get their money back and exactly how much money is involved. Previously, the fund would have had some $18 billion under management. Apart from Terra, the market as a whole has already fallen hard, so the amount it now has available will be a lot less.
The company also offers ‘treasury management’ to companies, which in this case means that it receives ‘idle’ money from companies that want a return on their money. 3AC invested that money in cryptocurrencies. So the companies that gave their money to this fund are vulnerable.
3AC will have the necessary lawsuits pending. Besides the case against Terraform Labs (of the LUNA token), most investors in the fund will have filed a case as well. So they can demand their money back, but if they get their money back at all, it will only be a part of their investment. The money is simply not there. Yesterday, it was announced that the fund cannot repay two loans totalling $625 million to Voyager Digital.
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Consequences for cryptocurrencies
Perhaps you thought that 3AC was already selling, and that the bankruptcy had already been factored into the price. But apparently that’s not the case, and the effects are already showing up in the price at the time of writing. If this fund has to sell, that is reason enough for other companies to do so as well.
Liquidation therefore ensures that other companies must do the same. Not only funds are vulnerable then, but all cryptocurrencies. Then the riskiest, most volatile assets are sold off the most. A sell-out in crypto.