The lull does not seem to be able to last on the cryptocurrency market.
After a few stabilization sessions, the prices of digital currencies are falling again, suggesting that investors’ fears and questions about the solvency of certain firms in the sector remain strong.
These fears have just been confirmed with the default of payment by the powerful hedge fund Three Arrows (3AC).
3AC has defaulted on a loan worth more than $670 million, digital asset brokerage Voyager Digital said on June 27 in a notice.
The firm said, in a press release, 3AC failed to make the required payments on its previously disclosed loan of $350 million in the U.S. dollar-pegged stablecoin, USDC, and another 15,250 bitcoin, worth about $323 million at today’s prices.
“Voyager intends to pursue recovery from 3AC and is in discussions with the company’s advisors as to legal remedies available.”
Bitcoin and Ether are Down
This information threw a chill on the market.
Bitcoin fell 3.5% to $20,782.17 in the past 24 hours, according to data firm CoinGecko. Ether, the second digital currency by market value, fell 3.8% to $1,186.92.
With the exception of stablecoins, most major digital currencies were down. This was true for Dogecoin, Shiba Inu, Solana, Polkadot, Avalanche, Cardano or Binance as well.
As mistrust sets in and investors wonder what will be the next domino to fall, Voyager Digital insisted that the firm remained solvent despite 3AC’s default.
“The platform continues to operate and fulfill customer orders and withdrawals,” the firm said.
As of June 24, 2022, Voyager had approximately $137 million cash and owned crypto assets on hand, the company said. It also claimed to have access to $200 million cash and USDC revolver and a 15,000 BTC revolver from Alameda Ventures Ltd.
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Voyager Digital “has accessed US$75 million of the line of credit made available by Alameda and may continue to make use of the Alameda facilities to facilitate customer orders and withdrawals, as needed,” it said.
“The default of 3AC does not cause a default in the agreement with Alameda.”
But Chief Executive Officer Stephen Ehrlich said that: “We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands.”
3AC didn’t immediately respond to a request for comment.
3AC Lost Big in the Luna Collapse
The hedge fund confirmed on June 18 that it was having very serious financial difficulties after its investments in crypto projects like Luna turned into disaster.
3AC co-founder Kyle Davies told the Wall Street Journal that the firm invested over $200 million in Luna tokens in February, an amount that is now essentially worthless after the coin imploded in May.
“The Terra-Luna situation caught us very much off guard,” Davies told the paper.
TerraUSD, or UST, and its sister token, Luna, crashed after UST lost its peg to the dollar, the foundation of it qualifying as a stablecoin, which is a cryptocurrency tied to a more stable asset like the U.S. dollar or gold.
UST lost its dollar peg when millions of investors all wanted to redeem their tokens at the same time.
Davies said the firm had suffered heavy losses and had hired legal and financial advisers to explore its options, including asset sales and a rescue by another firm and hopes to reach a settlement with creditors.
Founded in 2012 by former classmates Su Zhu and Kyle Davies, 3AC had grown into one of the largest and best known crypto hedge funds. The fund had over $3 billion worth of cryptocurrencies under management as of April.
But the recent crypto market crash appears to have wiped out the hedge fund, which also owes $6M to crypto exchange BitMex, according to theBlock.co.