Three Arrows Capital: What REALLY HAPPENED to 3AC?! 🏹

Last week saw the collapse of three Arrows capital A fund that at one point had over 10 Billion dollars in aum was reduced to a Debtor with several counterparties Knocking at the door how did all this Happen Could this spread to other crypto funds And companies and what does this mean For the future of crypto that’s all Covered today so don’t go anywhere [Music] Before the arrows start to fly you need To know a bit about this guy Financial advice is not a service i Provide education is what you’ll find With a bit of entertainment on the side So please contact a financial advisor if Your investments are on the slide Now if this is the first time you see my Face welcome to the coin bureau prime Crypto and macro content real estate We make videos that are first rate Dealing with all aspects of the modern Financial space If that sounds great hit subscribe and The bell icon mate Okay now that we’ve got all that Straight let’s see what caused three Arrows capitals bubble to deflate Before we can dive into what happened we Need a bit of background about the fund Three arrows capital or three ac for Short was founded back in 2012 by suzhou

And kyle davis they were old school Classmates and had worked in a number of Trad fire roles in asia they started 3ac With 1.2 million dollars in capital and Their first office was in their living Room Their initial focus was on trading Traditional emerging currencies The firm grew to over 30 employees Within three years However it wasn’t until the founders Started dabbling in crypto that things Started to pivot Sue stated that in 2017 he became aware Of crypto’s potential In this bloomberg interview he said Quote in late 2017 it became extremely Clear to me just from the calibre and Energy of young people involved in the Space that crypto was going to follow The dot-com cycle of creative Destruction and then eventually become a Paradigm shift across finance technology Culture and politics then in 2018 3ac Became almost exclusively a crypto Focused firm Sue called the bottom of that bear Market when bitcoin was at close to 3 800 We all know what happened over the next Two years And with that bull cycle came immense Returns and wealth for 3ac Now 3ac’s investment strategy was

Initially focused on trading bitcoin and Ethereum in the derivatives markets According to that bloomberg interview Derivatives are still the company’s Bread and butter but over the years 3ac Has greatly diversified its investment Strategy The fund started investing in crypto Companies in equity rounds layer ones Defy other funds gaming and nfts Now when you take a look at an overview Of its portfolio it’s pretty damn solid Given that sue and kyle were such Well-known figures in the space you can Be sure that they got in on a lot of These projects seed or strategic rounds I.e at prices that us mortals could only Have dreamed of It’s no wonder then that their aum was Able to swell to over 10 billion And according to the founders they never Took on external capital which can only Mean that this was their own money And speaking of the founders they were Quite popular in the crypto community And were active on crypto twitter they Regularly posted about their market Moves and theses and weren’t averse to The occasional post either Many on crypto twitter thought that Their public statements were a form of Psychological operations or psyops Words intended to mislead retail Investors to trade the opposite way this

Was particularly evident last year when Sue claimed he was quitting ethereum as It had abandoned its community However it transpired that about a month Later 3ac bought over 150 000 eth According to nansen analytics Okay so that’s a bit of background but How did a star of the crypto space fall So quickly Well like anything in life it starts With one really bad bet and that bet Was terror Unless you’ve been living under a rock The past few weeks you’ll have heard of The terra luna and ust collapse if you Don’t know exactly what happened then Our video about that will be in the Description As i mentioned in that video one of the Methods that terra wanted to use to Shore up the ust peg was the luna Foundation guard or lfg Now the lfg raised over one billion Dollars in bitcoin which was exchanged For one billion dollars in lunar coins Those buying luna included the likes of Jump crypto defiance capital and 3ac Apparently 3ac bought 10.9 million lunar That were locked due to vesting That luna cost 3ac a pretty penny over 500 million dollars Now 3ac was a big proponent of terror And worked closely with the lfg in order

To accumulate more of that bitcoin Of course we all know what happened with Terror the death spiral in ust led to a Collapse in the value of luna which was Minted into infinity Want to guess what that lunar position Over at 3 ac is worth now About 670 Yikes Now i should also point out that the Actions of the lfg in the wake of the Collapse had massive implications for The broader crypto market That’s because in order to defend the Peg over three billion dollars of Bitcoin had to be sold which naturally Drove down btc’s price Three ac took their l and appeared to Have moved on from the saga According to a recent wall street Journal post kyle davis said that they Initially managed to handle the lunar Hit But the market conditions post-terror Only made things worse This all coincided with a toxic macro Environment and piss-poor crypto Sentiment However it appears as if two trades in Particular may have sunk 3ac Now it was well known that 3ac was the Largest holder of greyscale’s bitcoin Trust or gbtc shares for those who don’t Know the greyscale bitcoin trust is an

Investment vehicle that was one of the First structured institutional products For btc It allowed institutional investors to Get exposure to bitcoin without having To buy and store the spot equivalent Now this had for years traded at a Premium given that it was one of the Only ways for these big players to do This This premium proved lucrative for those Firms like 3ac that could make an Arbitrage on it However with the launch of all those etf Products we saw over the past year this Greyscale premium became a discount And over the past few months that Discount has continued to widen Knowing that the etfs would eat their Lunch last year greyscale began actively Filing to convert its bitcoin trust into An etf However the sec has been denying the Application at every turn This is due to many factors which i Shan’t go into here more on those in the Description if you’re curious Now 3ac was of the view that this Grayscale discount would immediately Reverse itself the moment an etf was Approved the thinking was that if it was An etf its net asset value should track The price of bitcoin much more closely This is something that sue tweeted about

Last year It was a great opportunity for those People who quote missed the rally In the weeks after the terror collapse 3ac focused a lot of its attention on The gbtc arbitrage In early june for example they were Pitching the idea to numerous investors Looking to take on external capital According to this piece from the block 3ac’s investment management arm tps Capital was asking for a 20 management Fee on this arbitrage trade According to the article 3ac was Pitching the trade on the 7th of june a Few days before rumors of insolvency Started to surface Now no one knows how many people chose To invest in 3ac’s grayscale pitch but Given that this came after the very Public terror implosion one can assume That they would have had a pretty icy Reception when they pitched it Either way the continued widening of the Gbtc discount over the past few weeks Could only have worsened not only 3ac’s Own position in gbtc but also those of The clients who may have invested in the Trade We don’t know exactly when 3ac closed Out of their gbtc position but as of the 17th of june bloomberg updated its gbtc Holdings tracker and 3ac was no longer Listed as a holder

Perhaps they were forced to liquidate All their gbtc as a result of a cascade Of margin calls and liquidations Or maybe it was caused by another bad Trade a trade that could be verified on Chain and one that also went badly for Other players in the space This was the long bet that 3ac took on Tokenized staked eth or st eth Now i talked about this in a bit more Detail in a video that was on my clips Channel if you want all the details Basically despite the fact that st eth Was not designed to be pegged to eth There were many who thought that it Shouldn’t diverge from parity it is After all a token that generates yield And will be redeemable for eth when the Network transitions to proof of stake That is scheduled to take place sometime Well who knows But the point here is that there were Many who thought holding st eth was a No-brainer including sue He tweeted on the 12th of june that st Eth has a great deal of functionality And therefore should be considered as an Attractive part of an eth demon Portfolio Unfortunately for the holders st eth Began to fall in price relative to eth This led large players in the space such As alameda research to convert their st Into eath on curve pools

This precipitated further falls in the Price of st eth and drained the curve Pool of its heath thereby making it Imbalanced But it wasn’t just alameda that was Dumping 3ac was also exiting its Positions Only two days after sue’s bullish tweet On st eth they converted over 22 000 st Eth into eth oh and i’ll also mention That this collapse in the price of st Eth could also be a part of the reason Why celsius ran into liquidity issues More about that in the description It wasn’t too long after celsius Announced that it was stopping Withdrawals that the rumors of the 3ac Collapse started coming through This thread on twitter was one of the First to emerge It noted that neither sue nor kyle had Tweeted for days sue had deleted his Instagram and that they were dumping Their ste’s positions On top of that it pointed to some Bitfinex leaderboard numbers which Showed how big their losses were But in the days that followed we learned Just how exposed they were and how Interconnected most of the crypto space Has become Once it was clear that 3ac was in Trouble stories began to surface of just How much leverage it had been taking on

Since the lunar collapse This was with borrowed funds from many Of the biggest lenders out there As 3ac’s capital position continued to Worsen it appears that they levered up Their risk in order to make some money Back This had the impact of compounding their Losses and digging an even bigger hole For themselves Not only that but according to some the Founders completely ghosted most Counterparties and even members of their Own team In the days that followed reports Started to emerge of just what exactly The 3ac team was up to What many thought was a fund that was Well risk managed with acceptable hedges Was more of a degen yield farm betting More than its own money That’s because according to numerous Sources from projects they invested in 3ac offered what are called treasury Management services Essentially the projects would hand over The funds that they’d raised 2-3 ac and 3ac would help the project teams Generate yields on those funds Who knows what exactly they were doing With those funds and how they were Generating that yield but The projects that did give 3ac their Funds to manage have lately been unable

To reach the 3ac team These claims of 3ac managing project Treasuries led many of those that had Taken investment from them to issue Statements these included the likes of Avalanche dydx and others But the broader concern with the Collapse of 3ac was not whose money they Lost but who they were exposed to The attention of the market turned to Who else was exposed to 3ac apparently The company had taken out massive loans From many crypto lenders in the space Not only that but they had trading Accounts at numerous exchanges which Were also on the verge of being Liquidated When the rumor mill began to turn some Of those lenders had to issue statements About actions they had taken this was at A particularly sensitive time for them Given that only a few days previously Celsius had halted withdrawals an action That sent shock waves through the Lending sector Blockfi and genesis were two of the Firms that attempted to clear the air They both mentioned that they had Liquidated the collateral of a trading Partner they didn’t name any names of Course In the case of genesis they said that They did take a loss but it was Contained and they would be taking legal

Action It was also reported that bitmex had a Three ac trading account that was five Million dollars in debt and which they Had closed out It didn’t impact their other accounts And they would also be pursuing legal Action Deribit stated that they also had some Trading accounts that were underwater But they also managed to keep things Contained and there was no risk to any Of their users accounts however one Lending platform that did appear to have Suffered from the three ac fallout was Finblocks 3ac invested in finblocks and It was offering people returns of up to 90 on their crypto so what could Possibly have gone wrong Anyways last week finblox had to limit Withdrawals on its platform to fifteen Hundred dollars a day This was presumably to stem the leak From the flood of withdrawal requests Still speculation continued to swirl Around who else had exposure to three ac And who had loaned them crypto It was now clear that these Counterparties would not get their money Back and would have to take an l of Course there’s also the question around What happens to those projects that 3ac Has invested in they were pretty active In seed or strategic rounds for some of

The most high profile raises of the past Three years Given that these were earlier rounds That means a lot of the tokens are most Likely locked investing contracts so This then raises the prospect of three Ac’s allocations being dumped the moment They hit the unlock especially if those Tokens are reclaimed in a bankruptcy It’s not a pretty picture Now the prospect of asset sales and Disposals was made even more likely when The founders eventually broke their Silence They said that they are considering Asset sales as well as the prospect of Being taken over by another firm Whether they can really get themselves Out of a hole which is speculated to be Over one billion dollars deep Well that’s anyone’s guess Now that’s most of what we know so far About the 3ac saga I’m sure there’s going to be a lot more Coming out in the days weeks and months Ahead So what does this mean for three arrows Capital Well it’s in a tight spot and that is Putting it mildly the company has a deep Deep hole to dig itself out of and any Firm that’s looking to acquire 3ac will Have to also take on all the debt it has Accumulated

It’ll also be hard for 3ac to recover Through asset sales given crypto prices Right now but the broader question is What this could mean for the wider Crypto space Well it’s worth pointing out that this Happened in a very public way and about The same time as the celsius saga began To unfold it was also less than a month After the terror implosion This means the gaze of regulators is now Fixed on the sector you can bet your Bottom satoshi that they are sharpening Their pencils to start bringing the Crypto industry to heal And To be honest i think a bit of regulation May be needed in this space as long as It’s common sense and doesn’t stifle Innovation then it could help to foster Strong organic adoption There should be more transparency around What these funds are exposed to and what Products they’re investing in There should also be clear rules around Leverage and fund var in the future Such rules could allow for more Transparency and hence less uncertainty Around counterparty exposure However one of the most important things That stuck out for me from this collapse Is just how reckless institutions can be We always harp on about that Institutional adoption and how it can

Make the crypto markets more mature However in this case their high leverage And interdependence have brought the Market to its knees Then again we should have known that This was a likely outcome we saw it in The great financial crisis of 2008 as Big players recklessly bet on housing Bonds However in this case we are not going to See a taxpayer-funded bailout and to be Honest that’s a good thing doing so Would make us no different from the trad Fire sharks moreover when you reward Failure you create a moral hazard This was a painful lesson for the crypto Space but it was an important one it’ll Make us a lot more resilient and a lot More prepared for the next bull market Whenever that may come So i hope you enjoyed that video and i Would love some of your feedback what do You think of the 3ac saga and how do you See it playing out let me know in those Comments down below oh and while you’re Down there you may want to check out my Socials page it’s over here where i’ve Links to all the other places that you Can follow me off the tube these include My telegram insider channel for daily Market updates my tic toc and instagram For behind the scenes views my twitter For announcements and other news and my Weekly email newsletter it’s over here

Where i share my once weekly take on the Markets as well as giving you the Breakdown of my personal portfolio it Comes with a complete 100 Spam free guarantee So all of that which you seek is below Finally if you think this crypto guy did A fine job smash up that like button Don’t forget to hit that subscribe Button as well oh and don’t forget the Bell so youtube can let you know when Our next video is up So till next time folks crypto may be Tough right now but hang on in there and Better days will come again [Music]


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