Crypto Hedge Fund’s Ominous Tweet Is Latest Shock to MarketAdvisor Perspectives
A vague tweet by a founder of Three Arrows Capital, an influential hedge fund that has been liquidating crypto holdings as prices plummeted, is stirring fresh apprehension in an already shaken industry.
“We are in the process of communicating with relevant parties and fully committed to working this out,” former Credit Suisse Group AG trader Zhu Su tweeted from his verified account, without providing further details. Zhu and Three Arrows co-founder Kyle Davies didn’t respond to requests for comment.
Zhu and Davies are thought to be among the world’s biggest crypto holders. Any sign of stress on their operations would be unwelcome news for industry bulls. Three Arrows was estimated in March to be managing around $10 billion in assets, according to blockchain analytics firm Nansen. While information on its trading strategies is sparse, Three Arrows is known to hold stakes in a diverse range of different cryptoassets. It also owned more than 5% of the Grayscale Bitcoin Trust — the world’s largest Bitcoin fund — as of December 2020, according to the latest available regulatory filings, though it’s unclear whether Three Arrows has maintained that position.
Three Arrows is among the highest-profile players in decentralized finance, an especially buzzy arena of digital commerce whose hallmark is the use of cryptocurrencies as collateral for major loans and leveraged bets. But when the market goes through rocky periods and token values decline, those positions can be automatically liquidated in quick succession, forcing hedge funds like Three Arrows to either spend more in support or face being wiped out. Mike Novogratz, the billionaire founder of Galaxy Digital Holdings Ltd., said earlier this month that he expects two-thirds of crypto hedge funds to fail during this market rout.
We are in the process of communicating with relevant parties and fully committed to working this out
— Zhu Su (@zhusu) June 15, 2022
Crypto markets had already witnessed two high-profile blowups since early May, roiling an asset class that was under pressure from tightening monetary policy. First, the Terra decentralized-finance ecosystem collapsed when an algorithmic stablecoin that was a key part of it crumbled from its dollar peg. About a month later, crypto lender Celsius froze withdrawals on a platform where it offered high returns, citing a need to “stabilize liquidity.”
Three Arrows was among investors in a $1 billion sale earlier this year of Terra’s Luna cryptocurrency, the sister token of the TerraUSD stablecoin that lost almost all of its value in May when TerraUSD’s dollar peg broke. But recent attention around the fund has centered around its exposure to a cryptocurrency called staked Ether, or stETH, a token offered by a DeFi app called Lido Finance that has become widely used in the market.