Singapore-based cryptocurrency hedge fund Three Arrows Capital (3AC) faces insolvency issues following a purported defaulted crypto loan worth over $670 million.
When you have asset portfolios in the Web3 space worth billions of dollars, hacking attacks are merely one of the things you need to worry about regarding assets security. The biggest threat to your assets is the market itself.
Such cannot be truer in the case of the Singapore-based cryptocurrency hedge fund Three Arrows Capital (3AC). At the height of 2021’s bull market, the company stockpiled a digital assets portfolio worth over $10 billion, its highest since its foundation in 2012.
However, before the end of June, the news was rife that 3AC had defaulted on a loan from Voyager Digital, valuing more than $670 million in cryptocurrency. It triggered rumors that the company might have become insolvent.
The Truth about 3AC Rumors
Speculations were widespread concerning 3AC’s swiftly deteriorating status. Immediately following the defaulted loan, a British Virgin Islands court ordered the urgent liquidation of the fund and 3AC’s remaining assets. It only confirmed what the rumor mill has been spinning over the last month.
Moreover, recent court documents showing that 3AC has formally filed for Chapter 15 bankruptcy have surfaced online. To those unfamiliar with the U.S. bankruptcy code, Chapter 15 bankruptcy “is [a] legal filing that allows a foreign debtor to file for bankruptcy in the United States court system.” The company filed this because while they are based in Singapore, they have a broad multinational investor base.
3AC Contemplates Fire Sale
According to a report from Dune, 3AC’s high-ticket assets include $7.5 million worth of NFTs. And while the amount may seem insignificant compared to the billions in crypto that the company manages, a considerable chunk of their NFT collection consists of blue-chip NFTs. The company has a CryptoPunks collection worth over $3 million and a collection of ArtBlocksCurated NFTs totaling approximately $2.5 million.
With 3AC liquidating its assets, it won’t come as a surprise if pieces from its collection re-enter the market through a fire sale. According to a finance dictionary, a fire sale involves “selling goods or assets at heavily discounted prices,” typically when the seller faces bankruptcy.
Besides acquiring high-value NFTs as investments under the company, 3AC’s founders, Su Zhu (a former Deutsche Bank securities trader) and Kyle Davies (an ex Credit Suisse trader), also partnered with noted pseudonymous NFT collector Vincent Van Dough to start Starry Night Capital. Starry Night Capital is an NFT fund that intended to invest $100 million in the NFT community through a series of high-value purchases.
A notable purchase made through the partnership is that of Ringers #879 for Ξ 1,800 (roughly $2.1 million at current prices) in August 2021. At the time of purchase, the NFT’s value was $5.9 million.
In mid-June, even before the full extent of 3AC’s financial struggles became public knowledge, Starry Night Capital consolidated a significant portion of its multi-million dollar NFT collection into a single wallet. Some may have missed the gravity of the situation, but it indicated that 3AC was preparing for the liquidation.
There are reports that Zhu and his family have fled Singapore and are selling off their real estate assets on the open market, including properties worth $35 million and $20 million. Speculations are rife that the funds from the sale of said properties will not be used to repay 3AC’s colossal debt but will be sent to an account in Dubai, where Zhu is purportedly relocating.
Aside from 3AC’s insolvency issues, the company had also come under fire in Singapore when the Monetary Authority of Singapore censured it for exceeding the country’s $250 million assets under management (AUM) threshold at different times from July 2020 to August 2021.
It remains to be seen what will happen to 3AC next and if they will be able to settle any of their debts.
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