Now a day goes by when we are not hearing about three arrows capital. The cryptocurrency hedge fund was once riding high the wave of expensive (and risky) cryptocurrency bets. The bullishness of Co-founders Su Zhu and Kyle Davies was so high that even when the rest of the banks and traders were throwing jabs at them, they didn’t stop.
That is why it is so sad to see now that Su Zhu and Kyle Davies lost their own Mum’s money after going bankrupt.
How did we get to this point?
It is easy to point fingers and blame everything on the Terra-triggered crypto winter when talking about the fall of many crypto lending and hedge funding firms. But with 3AC, the story goes deeper.
Once upon a time, Three Arrows Capital came under fire for practicing something called currency arbitrage after getting into forex trading. Knowing what it is is not important that know that it allowed the founders to cash in the misquoted price from different brokers. Think of it like “rounding off” the last few digits and drawing penny profits from it. Pointing to such small profits would be petty, but when compounded, these small gains become larger.
That is why banks caught up to them and started cutting 3AC off by 2017.
As you can guess, the forex traders were angry – but they didn’t complain, considering the profits were a penny, and even when compounded, the larger gains weren’t enough to cause envy.
“People thought that these geniuses when they came to crypto,” – a former FX trader told New York magazine.
The term “genius” was used because 3AC used the same principles when they entered the crypto market.
The Moment Investors Started to Realize That Something was Off with 3AC
2019 was a great year for 3AC. The crypto market was flying high, and institutional investors were blowing up. But it was also the time when these investors started watching 3AC closely.
It all came to a head when 3AC sold its crypto options exchange, Deribit, for 700 million dollars. It was an inflated price, considering the initial investment was only $289 million.
The company later got under fire for bragging about its $ 2 billion bitcoin investment in Grayscale Bitcoin Trust. However, it took too long to sell its position and when bitcoin’s value tumbled, so did the gains 3AC could have made.
Investing in Terra and then – you know
The market was in a state of utter bullishness when Terra started flying high at the beginning of 2022. Everyone from Twitter to CoinmarketCap’s Timbuktu was talking about how great and transparent this crypto is.
And then it happened, 3AC fell victim to the hype and bet big on Terra and Luna. The firm initially invested $500 million, but the crash brought that value down to $604.
It was around this time that people started to see some transactions from 3AC’s side that indicated that the firm was trying to exit from many of its holdings.
People started speculating about the end days of 3AC, but that’s when Su Zhu rallied on Twitter to deny everything. It didn’t help that many deniers joined in and extended their support.
That brings us to last month.
3AC filing for Bankruptcy Last Month
Three Arrows Capital filed bankruptcy last month and brought down Voyager Digital with it. But unlike 3AC, Voyager had the support of FTX founder Sam Bankman-fried, a “good Samaritan” trying to control the crypto contagion from destroying many crypto lending companies.
The 3AC has become a butt of jokes from then, getting boos from left and right. And recently, the name of the Yacht that 3AC bought was confirmed.
We are going to see more stories come up about this defunct crypto hedge fund. Till then, watch your investments closely. Don’t grow too bullish about anything; always invest only if you can afford to.
