3AC Insolvency Rumours Cause Further Crypto Market Jitters

Reading Time: 2 minutes
  • Rumours over the solvency of 3AC has caused crypto market jitters
  • 3AC has failed to quell the waters over its purported $1 billion loan default
  • A 0.75% U.S. interest rate hike has also played a part on Bitcoin dropping to yesterday’s lows

Rumours about the solvency of crypto hedge fund Three Arrows Capital (3AC) has caused more jitters in the cryptocurrency market, with fears that the ripple effect could be temporarily devastating for asset prices. The Singapore-based hedge fund has refused to comment on speculation that it is massively underwater following claims that it has been liquidated to the tune of $400 million by several crypto lending firms. A tweet thread detailing the potential issues ahead for 3AC has whipped up the fear frenzy and wiped out yesterday’s crypto market recovery, leading to accusations of fear mongering.

3AC Borrowings Under the Microscope

3AC was co-founded by ‘supercycle’ theorist Su Zhu, whose theory this year proved to be spectacularly wrong. The fund was said to have an 11-digit portfolio, although the issue is more to do with the percentage of the assets under their control that were bought with their own money compared to how much was using borrowed funds.

3AC is known for borrowing from almost all the major crypto lending platforms, and with the prices of crypto assets crashing it is rumoured that the company got margin called for $5 million on a $1B loan but couldn’t meet their obligations. This added to a combined $400 million in liquidations, according to blockchain reporter Colin Wu:

Normally in these situations a company in a strong financial position would come out and scotch the rumours instantly, but instead there has been very little communication from 3AC, apart from a tweet from Zhu overnight that offered little comfort:

Popular Tweet Thread Preaches Cataclysm

An instantly popular tweet thread from Twitter user degentrading (@hodlKRYPTONITE) posted after Zhu’s tweet broke down the situation potentially facing 3AC and the impact it could have on the market:

The headline of the tweet thread, which has already been criticised by some as mere FUD-spreading, is that the Bitcoin price could go below $10,000 if the worst was to happen and 3AC folds, with degentrading saying that “…the collapse of a major fund and a major lender will shrink overall credit in the system and lead to continued deleveraging. So far we have had a orderly liquidation but more people need to delever still.”

The crypto market seems to be trying to price in a 3AC collapse, and a 0.75% U.S. interest rate hike, with Bitcoin returning to yesterday’s lows and looking like it wants to test the 2016/2017 bull run high, although if the bearish predictions come true we could be seeing a lot worse fairly soon.