Three Arrows Capital Default
The Callous side of crypto volatility is on full display
JUNE 29TH, 2022. 2:07 AM.
Hey Guys,
This is Web3 Digest Premium,
Sorry I’m in bear mode again.
I’m a masochistic sort of contrarian guy who likes to play devil’s advocate. For years I wrote for blockchain startups, until I became disgusted by all the fraud I was witnessing. I guess you could say my Crypto Winter Column is my fair revenge.
Welcome to Crypto Winter, where I take on some of the less than stellar parts of Web3 and crypto when Bitcoin's hype turns to history and volatility. #Rekt — Borrowed from online gaming slang, to mean utterly destroyed or ruined. Don't say that I didn't warn you!
This column is dedicated to the reader who gave me the idea! You know who you are.
For years Medium and Substack have been places for people to boast about crypto, embrace the hype and give you the narrative that you wanted to hear? They pumped and dumped ICOs, and we’ve seen it again with NFTs in this bull cycle. But what happens when reality set in?
People actually get hurt.
Coinbase literally let go of 1,700 people in June, 2022. Guys that’s a pretty significant mount of layoffs. These are people setting on $Billions of cash. Today the stock was down 8%, the down ratings are finally coming home to roost.
Remember please, where we began with the Coinbase IPO? Its shares ended their first day of trading at $328.28 after receiving a reference price of $250 each, down from their high of about $425. Shares today? $51.81, even as Binance and FTX are more or less dominating.
For Coinbase’s stock price, that’s nothing compared to what’s coming.
It’s beyond belief.
Three Arrows Default
While Coinbase merry cut 18% of its workforce, it’s what you didn’t hear about that’s even more worrisome.
One of the most prominent crypto hedge funds just defaulted on a $670 million loan
The story goes like this:
Prominent crypto hedge fund Three Arrows Capital has defaulted on a loan worth more than $670 million.
Digital asset brokerage Voyager Digital issued a notice on Monday morning, stating that the fund failed to repay a 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. Rekt themselves had this take on the matter.
CEO Brian Armstrong pointed to a possible recession, a need to manage costs and growing “too quickly” during a bull market.
Yes Brian, we do know that you hired like an idiot for a very long time. Maybe you thought you were Jack Dorsey or something with Block, that actually has a real business model.
Sorry if I am a little bit pissed off! All is fair in fraud and a crypto winter. Coinbase is laying off almost a fifth of its workforce amid a collapse in its stock and crypto prices.
3AC’s solvency crunch comes after weeks of turmoil in the crypto market, which has erased hundreds of billions of dollars in value.
Luna, Celsius, Three Arrows, it’s just the beginning guys.
What is Contagion when Bitcoin’s Price Plummeting is Inevitable?
Voyager said it intends to pursue recovery from 3AC (Three Arrows Capital). In the interim, the broker emphasized that the platform continues to operate and fulfill customer orders and withdrawals. That assurance is likely an attempt to contain fear of contagion through the wider crypto ecosystem.
The FTX bailout of BlockFi and rumors of acquiring Robinhood or a competitor is really part of the pariah under-belly of crypto, so-called Web3. WeBull would be a nice prize.
BlockFi secured a $250 million loan from FTX to “bolster” its balance sheet. Morgan Creek Is Trying To Bailout BlockFi To Counter FTX. The crypto tycoons are on the move!
The company had previously laid off 20% of its workforce and liquidated a loan made out to prominent crypto hedge fund Three Arrows Capital. What a surprise!
“We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands,” said Voyager CEO Stephen Ehrlich.
Are you Stephen? Of course you are.
How Low Could Bitcoin Go Realistically?
I actually do honestly predict Tether will collapse, if not in 2022 possibly in 2023. Panic, crypto, winter! We meet again. Bitcoin at below the $8,500 level is my bear case. ($8,309 to be precise).
As of Friday, Voyager said it had approximately $137 million in U.S. dollars and owned crypto assets. The company also noted that it has access to a $200 million cash and USDC revolver, as well as a 15,000 bitcoin ($318 million) revolver from Alameda Ventures.
Stark Lack of Transparency and Leadership in Crypto Sector
Crypto and Web3 is well known for its lack of transparency and abundance of hypocrisy. Tether is a great case in point and why it’s likely actually vulnerable.
In a thread published the same day that rumours began to circulate about 3AC, Voyager stated that “transparency is a core part of our ethos”, describing the company’s “straightforward, low-risk approach to asset management”, whilst claiming that they “have the experience to back our decisions and weather any bear market.”
What a picture of accountability, fake it till you make it bro, unless you default first. How many Justin Suns is the crypto world filled with? They are a dime a dozen. And that’s a pretty scary reality for an unregulated supposedly new asset class. Consumers get screwed with every bull market and pump and dump.
Bitcoin’s “Volatility”
However Bitcoin’s cycles are actually pretty predictable if you have a head for charts and an eye for common sense and how manipulated it all is. Billionaires can manipulate a shitcoin with just a Tweet, as it turns out. And of course, they actually do.
I too want to buy Tesla swag with Dogecoin? Or do I?
I can only imagine what will happen with all the NFT platforms, maybe even a16z will find some incredible karma in their big bets. But hey, a16z literally think they own the Future. Who am I to argue with such a brilliant crew?
Who would dare to downgrade Coinbase at the onset of a crypto winter? Well Goldman Sachs is who. Say it ain’t so Silicon Valley. Are you still eating my Bitcoin?
Cathie Wood is going to have a field day and buy Coinbase (a proxy for Bitcoin’s price on the stock market) as it goes down to $20. I’m sure the data scientists at Coinbase know how to time the markets as well, you know, with all that great talent!
Crypto Overlords and their Sweet Promises
How did 3AC get here?
Three Arrows Capital was established in 2012 by Zhu Su and Kyle Davies.
Zhu is known for his incredibly bullish view of bitcoin. He said last year the world’s largest cryptocurrency could be worth $2.5 million per coin.
And here I thought $100,000 was a bullish bet!
(I regret to inform you that I too am not fully transparent). But in May this year, as the crypto market began its meltdown, Zhu said on Twitter that his “supercycle price thesis was regrettably wrong.”
While Stephen from Harmony is talking with the FBI, what is Zhu actually going to say?
How do you want to work out the crypto winter bro?
Fuck you and your overlord bullshit. (am I allowed to swear on Substack?).
Three Arrow Capital’s problems appeared to begin earlier this month after Zhu tweeted a rather cryptic message that the company is “in the process of communicating with relevant parties” and is “fully committed to working this out.” That was on June 14th, I honestly have no idea what’s going on any longer.
The callous side of the crypto winter truly only begins when Bitcoin hits rock bottom and stays there for several months, that’s when the real panic sets in, the volatility itself only causes minimal damage.
It’s how VC responds to a new financial paradigm of high-interest rates and a lack of hype and demand that’s the real long-term problem here for Web3 startups bathing in cash in Miami, read for a great flood and a great freeze.
What if Bitcoin is not as we were taught? Higher highs and higher lows and HODL until the end of time. Democratizing finance eh? I guess that’s why Jack Dorsey goes to the hood to preach with Jay-Z?
Bitcoin has never even tasted a recession. Miraculously “invented” during the heart of the Great Recession of 2008.
At least Elon Musk will be able to buy Bitcoin at a fair rate to fund his companies always potentially on the brink of bankruptcy.
RIP crypto kings and queens. Cya Luna. Even the price of Solana compared to before is mind-boggling.
Ethereum never even was able to scale in all of these years. Solana was $180 and now it’s $35 going back to $15 soon, how do the bag holders actually feel? Why don’t we ever talk about all the suckers out there?
And by the way, Voyager’s stock (VYGVF: OTC) is down 97% in the last six months.
Thanks for reading!