Cryptocurrency ‘bloodbath’ threatens multibillion-dollar hedge fund

view original post

The “bloodbath” in the cryptocurrency sector may claim another victim, with the co-founder of multibillion dollar hedge fund Three Arrows Capital using Twitter in an attempt to battle rumours that the company is insolvent following the market collapse.

With a net asset value of $18bn (£14.9bn) in its last public statement, the Singapore-based hedge fund was known for taking large, highly leveraged stakes in crypto businesses and cryptocurrencies directly. It holds positions in cryptocurrencies including bitcoin, Ethereum and Solana, as well as equity investments in companies such as the BlockFi exchange and options trading platform Deribit.

The turmoil in the crypto markets has substantially reduced the value of those holdingsand wiped out some other stakes the fund, known as 3AC, has taken, including in doomed “algorithmic stablecoin” project Terra and “play-to-earn” game Axie Infinity, which was the victim of a $700m hack late last year, attributed to North Korean state-sponsored hackers.

Zhu Su, the Dubai-based investor behind the crypto-focused trading house, tweeted on Wednesday morning that “we are in the process of communicating with relevant parties and fully committed to working this out”.

We are in the process of communicating with relevant parties and fully committed to working this out

— Zhu Su 🔺 (@zhusu) June 15, 2022

With traders already nursing wounds after a 25% drop in the price of bitcoin in a single day, sparked by the announcement by ersatz crypto bank Celsius that it would be suspending withdrawals, Zhu’s statement kicked off a further day of turmoil in the crypto sector. Crypto exchange Binance’s chief executive, Changpeng Zhao, described the situation as a “bloodbath”.

Bitcoin’s value continued to tumble on Wednesday, to just over $20,000, 70% below its record high of $69,000 in November.

Tether, the centralised stablecoin which holds systemic importance to the wider cryptocurrency sector, published a statement denying any losses from 3AC or Celsius.

“Celsius position has been liquidated with no losses to Tether,” the company said. “Tether’s lending activity with Celsius (as with any other borrower) has always been overcollateralized. Tether has currently zero exposure to Celsius apart from a small investment made out of Tether equity in the company.”

The company had previously told the Financial Times that its loans to Celsius were 30% over-collateralised, meaning it had taken $1.30 in bitcoin for every $1 it lent out.

Celsius added: “Tether is aware of other rumours being spread, suggesting that it has lending exposure to Three Arrows Capital again this is categorically false.”

The company also dismissed claims that its large holdings of commercial paper – short-term loans to businesses – were held in disproportionately risky investments. It also said that it intended to replace those holdings with US Treasury bonds, though offered no date by which that switch was intended to have occurred.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

On Wednesday, the Tron DAO reserve project, which backs the USDD algorithmic stablecoin, announced it was withdrawing more than $100m worth of cryptocurrency from Binance in order to support the dollar peg of its stablecoin, which had slipped to $0.97 on crypto exchanges. That sparked fears that the stablecoin might follow in the footsteps of its similarly structured peer UST, the collapse of which precipitated the latest crisis.

Teunis Brosens, head economist for digital finance at Dutch bank ING, said that while the run on cryptocurrencies could partly be explained by wider market conditions, the recent collapse of the Terra stablecoin project had sparked a deeper concern about the overall viability of some of the less well-known digital assets. “Crypto investors have grown very critical, especially about the more complex products, and want to get out. There may still be confidence in bitcoin and Ethereum, which are the more straightforward currencies, but as people scramble to get out of the complex products, entities like Celsius have to liquidate their conventional coins like bitcoin and Ethereum, which only depresses their price further.”

On Tuesday evening, Bill Gates warned that the Crypto sector was a bubble economy, “100% based on greater fool theory”, the idea that profit comes from finding someone dumber than you to sell your asset to. “I’m used to asset classes … like a farm where they have output, or like a company where they make products,” Gates said.