Life is like a spinning wheel. This will probably be experienced by everyone in the world, including the crypto bookie owner of Three Arrows Capital (3AC), which in March 2022 was called the world's leading cryptocurrency hedge fund.
How not, they are able to manage assets of US $ 10 billion. However, that success is now just a dream. The reason, 3AC is now experiencing bankruptcy due to several problems.
Those problems are the plunging crypto prices, risky trading strategies, and the policy of removing troubled assets and making them unable to repay lenders.
Not only a problem for one company, the problem can have a wide impact on other companies. Moreover, 3AC has a large list of partners. The crypto market, which has fallen by more than $1 trillion since last April, is sure to make companies like 3AC suffer.
"Credit is being crushed and withdrawn, underwriting standards are tightening, solvency is being tested, so everyone is pulling liquidity from crypto lenders," said Nic Carter, director of Castle Island Ventures, as quoted by CNBC International, Tuesday (12/7/2022).
The Three Arrows strategy is considered quite dangerous. The reason is, they involve borrowing money from many companies to then invest in crypto projects, which are still new and untested. Even though this firm has been around for a decade (10 years).
“3AC should be wise in crypto investing,” said Nik Bhatia, a professor of finance and business economics at the University of Southern California.
The Fall of Three Capital Arrow
The story of 3AC's bankruptcy can be seen from the collapse of the terraUSD (UST) price in May. TerraUSD is one of the most popular US dollar-pegged stablecoin projects.
"A correction in risk assets coupled with less liquidity has exposed projects that promise unsustainably high yields, resulting in price collapses, such as UST," said Alkesh Shah, global crypto and digital asset strategist at Bank of America.
With the fall of terraUSDT and its sister token Terra LUNA, so did investors. The reason, they suffered a loss of US $ 60 billion.
"The terraUSD and luna crashes were ground zero," said USC's Bhatia. He described the crash as the first domino to fall in "a long and nightmare chain of influence and deception."