Home Hedge Funds Crypto turmoil intensifies as major fund defaults

Crypto turmoil intensifies as major fund defaults


The turmoil in the crypto currency market has intensified with the announcement on Monday that the prominent crypto hedge fund, Three Arrows Capital, had defaulted on loans worth a total of $670 million.

The money is owed to the digital asset brokerage firm, Voyager Capital, which issued a notice saying Three Arrows had failed to repay a $350 million loan in the stablecoin USDC as well as about $323 million worth of bitcoin.

An advertisement for Bitcoin cryptocurrency is displayed on a street in Hong Kong, Thursday, Feb. 17, 2022. [AP Photo/Kin Cheung]

Three Arrows’ troubles flow from the crisis in the crypto market that erupted last month when the so-called stablecoins TerraUSD and its sister stablecoin Luna collapsed leading to losses of billions of dollars.

Stablecoins were touted as providing stability for the crypto market because they were supposedly pegged to the US dollar and functioned in a way analogous to chips in a gambling casino that could be cashed in at full value. In May, however, they fell below dollar parity.

Three Arrows had invested heavily in Luna which fell to virtually zero.

As warnings of the impending Three Arrows default spread last week, attention was directed to Voyager Capital with its shares falling by more than 60 percent last Wednesday.

Following the confirmation of the default, Voyager issued a statement aimed at trying to contain fears of contagion throughout the crypto market. Overall market capitalisation has plummeted from $3 trillion last November to around $900 billion—a loss of almost 70 percent.

Voyager CEO Stephen Ehrlich said the company was “working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can meet customer liquidity demands.”

The contagion fear results from widespread borrowings by Three Arrows, one of the largest crypto asset hedge funds, from a range of companies to finance its investments across a number of digital assets. There are fears that Voyager may not be the only company facing large losses.

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