The stunning downfall of Three Arrows Capital (3AC) captivated the crypto world. How did Three Arrows Capital go from several billion under management to virtually zero in a few weeks? This is the story of a meteoric rise and an even faster crash.
From Crypto Giant to Zero: Unpacking the 3AC Collapse
Three Arrows Capital (3AC), a Singapore-based crypto hedge fund that at one point managed over $10 billion worth of assets, became one of the many crypto firms that succumbed to the market downturn. But the speed and scale of its demise were particularly shocking. Pretty much everyone in that world, from the millions of small-scale crypto holders to industry employees and investors, has watched in shock and dismay as Three Arrows imploded.
The Domino Effect: Debts and Defaults
The key factor in 3AC's collapse was its excessive borrowing and high-risk trading strategies. As crypto prices plummeted, 3AC faced massive margin calls that it couldn't meet. This triggered a chain reaction, leading to defaults on loans and ultimately, bankruptcy. Since their crypto hedge fund Three Arrows Capital collapsed last yearleaving the firm owing creditors $3.3 billion and the crypto market reelingfounders Kyle Davies and Su Zhu have been widely criticized for their handling of the situation.
Bankruptcy and the Aftermath
Three Arrows Capital has filed for bankruptcy in the US, highlighting the scale and reach of the prominent crypto investment firm’s borrowings across the industry before it went under. The bankruptcy proceedings revealed a complex web of loans and investments, leaving many creditors scrambling to recover their funds. Its creditors and other crypto companies involved with 3AC lost significant amounts of money, contributing to a wider crisis in the crypto market.
Lessons Learned from the 3AC Debacle
The collapse of 3AC serves as a stark reminder of the risks associated with high leverage and poor risk management in the volatile crypto market. It highlights the importance of due diligence, transparency, and responsible financial practices. The 3AC story is a cautionary tale for the entire crypto industry.