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Report: Crypto Hedge Fund Three Arrows Capital Pitched A GBTC Arbitrage Trade Before Rumored Collapse

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Report: Crypto Hedge Fund Three Arrows Capital Pitched A GBTC Arbitrage Trade Before Rumored Collapse

Last week there was a lot of focus on the crypto hedge fund Three Arrows Capital (3AC) as the firm allegedly had a great deal of leveraged positions liquidated and there’s been speculation about insolvency. According to a recent report, 3AC’s over-the-counter (OTC) operation TPS Capital pitched a GBTC arbitrage opportunity before the company reportedly failed to meet margin calls.

3AC Co-Founder Says ‘Terra-Luna Situation Caught Us Very Much off Guard’ — FTX CEO Sam Bankman-Fried Insists Problems Like 3AC Couldn’t Have Happened With an Onchain Protocol

Before June 14, which was the last day Su Zhu tweeted, the co-founder of Three Arrows Capital Ltd. (3AC) was very active on Twitter. Since then, Zhu and 3AC co-founder Kyle Davies are not active on social media at all, but the silence has not stopped people from investigating the company. This is because various reports indicate that 3AC positions were liquidated and some reports speculate that the Terra LUNA and UST fallout crippled the company with “massive losses.” The same account indicates that it’s possible that it caused 3AC “to use more leverage to earn it back. Also known as ‘Revenge trading,’” the report added.

On June 17, it was reported by Reuters and the Wall Street Journal (WSJ) that 3AC was “exploring options, including the sale of assets and a bailout by another firm.” Davies spoke with the WSJ and he told the press that the “Terra-Luna situation caught us very much off guard.” Additionally, Michael Moro, the CEO of Genesis Trading, explained on Twitter that the firm “mitigated our losses” against a large counterparty that did not meet a margin call. He also added that no Genesis Trading client funds were impacted.

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Then ​​the FTX CEO Sam Bankman-Fried spoke about 3AC on June 19, and he stressed that issues like 3AC’s financial meltdown “couldn’t have happened with an on-chain protocol that was transparent.” Bankman-Fried’s statement stemmed from a question that asked how the crypto industry can ensure that a 3AC moment does not happen again.

Report Says 3AC’s OTC Desk TPS Capital Pitched a GBTC-Linked Trade Before the Alleged Collapse

Additionally, The Block reporter Frank Chaparro published a report that said “days before Three Arrows Capital blew up it was pitching investors on a new arbitrage trade.” Chaparro detailed that The Block reviewed investment documents that were allegedly pitched to investors by TPS Capital and the arbitrage opportunity involved GBTC, the Grayscale exchange-traded product tied to bitcoin (BTC). “They pitched to so many people,” an individual familiar with the matter told Chaparro.

“Three Arrows’ pitch was to structure a trade for counterparties that would offer the upside of the discount collapsing as the deadline neared for the SEC decision,” Chaparro wrote. “GBTC currently trades at a 33.75% discount to the price of Bitcoin, which it is meant to track.” Similar to the Celsius situation, the public has not really heard from anyone tied to 3AC. Although, the Celsius Network team did publish a blog post that noted the “process will take time.”

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3AC, Arbitrage, BTC, Celsius Network, Celsius situation, CEO of Genesis Trading, Frank Chaparro, FTX CEO, GBTC, GBTC arbitrage, Genesis Trading, Kyle Davies, Michael Moro, Reuters Report, Sam Bankman-Fried, Su Zhu, Terra-Luna situation, The Block reporter, three arrow capital, WSJ report

What do you think about the 3AC situation and the firm’s alleged GBTC arbitrage opportunity? Let us know what you think about this subject in the comments section below.

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Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

$655 million loan

Three Arrows Capital Allegedly Owes Voyager Digital $655M — Crypto Firm Is ‘Unable To Assess’ If It Can Recover The Funds

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Three Arrows Capital Allegedly Owes Voyager Digital $655M — Crypto Firm Is ‘Unable To Assess’ If It Can Recover The Funds

According to reports, the TSX-listed Voyager Digital is another company that has been negatively affected by financial issues tied to the crypto hedge fund Three Arrows Capital (3AC). In a letter to investors, Voyager’s management explained that 3AC potentially defaulted on a $655 million loan and it hopes to obtain some of the funds by the end of this month.

The Three Arrows Contagion: 3AC Owes $655 Million to Voyager Digital — Management Has Set a Repayment Date

3AC’s financial hardships have seemingly started a contagion throughout the crypto industry and while a number of firms said they were safe, others explained they were suffering from the fallout. For instance, a company backed by 3AC called Finblox detailed on June 16 that it had to pause rewards (up to 90% APY) for all of its users, and the platform upped withdrawal limits as well. This week, the publicly listed crypto company Voyager Digital revealed it was dealing with issues tied to 3AC.

In a letter sent to Voyager’s investors on Wednesday, the company disclosed it was owed $655 million and 3AC was supposed to pay the funds back in bitcoin (BTC) and the stablecoin usd coin (USDC). Voyager is owed 15,250 BTC and 350 million USDC, according to the company. Management said it originally asked for $25 million worth of USDC to be paid by June 24, but now it wants the entire balance of USDC and BTC by June 27.

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TSX-Listed Stock VOYG-T Loses Half of Its Value in a Day — Voyager Is ‘Unable to Assess at This Point the Amount It Will Be Able to Recover’

The news seemingly did not sit so well with Voyager investors as the company’s shares dropped 53% in value during a 24-hour period. Presently, the TSX-listed stock VOYG-T is down 52% and trading for $0.76 per unit. On June 21, VOYG-T exchanged hands for $1.60 per share and in March 2021, VOYG-T saw an all-time high (ATH) at $32.68 per share. VOYG-T is currently more than 97% lower than the ATH and the stock has been sliding lower ever since crypto markets have dropped in value. The 3AC loan default announcement added another blow to the value of the company’s shares.

The letter that discusses the initial USDC payment request, and then the request for the entire balance, says that Voyager does not know if it will be repaid. “Neither of these amounts has been repaid, and failure by [Three Arrows] to repay either requested amount by these specified dates will constitute an event of default,” Voyager said. “[The company is] unable to assess at this point the amount it will be able to recover.” Bitcoin.com News recently reported on Three Arrows Capital and explained how the company’s founders have been silent about the situation.

3AC co-founder Kyle Davies did disclose to the Wall Street Journal (WSJ) that the Terra LUNA and UST fallout hurt the company and plans were being made to find an “equitable solution” for all of 3AC’s constituents. Furthermore, 3AC allegedly tried to pitch a GBTC arbitrage trade to a lot of big name investors a few days before the company’s rumored collapse. Besides Finblox, Voyager, and 3AC, Mike Novogratz’s Galaxy Digital has seen its shares plummet significantly since the Terra LUNA and UST fallout. Galaxy’s shares are down close to 90% from the share’s price highs in mid-November.

Novogratz was also silent for a bit following the Terra fiasco but then published a public apology about the matter but said Galaxy did not suffer much from the Terra collapse. This is because Novogratz said that Galaxy stuck to a core tenet of investing which includes only investing in what you are comfortable losing. Since the letter, Novogratz has been a bit more active on social media while many others who promoted or invested in Terra have remained silent or dissociated themselves from the blockchain project.

Tags in this story

$655 million loan, 3AC, 3AC loan default, Bitcoin (BTC), Crypto, Cryptocurrency, defaulters, Digital Assets, Finblox, loan default, loans, LUNA, Stock Market, Terra fiasco, Three Arrows Capital, TSX-listed, usd coin (USDC), UST fallout, voyager, VOYG-T, VOYG-T stock

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What do you think about the problems Voyager Digital faces with the crypto hedge fund 3AC? Let us know what you think about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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3AC

Controlling The Chaos: Alameda Ventures Bails Out Voyager With $200M & 15K BTC

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Controlling The Chaos: Alameda Ventures Bails Out Voyager With $200M & 15K BTC

Apparently, Voyager Digital is out of the woods. The company ran into liquidity issues when Three Arrows Capital failed to pay a huge loan to them. Welcome to another chapter of the crypto death spiral caused by the Terra/ Luna collapse. Who came to the rescue this time? Sam Bankman-Fried’s other company, Alameda Ventures. Is this man bailing out crypto or is he taking total control of the industry?

In a recent press release, Voyager Digital announced that it “entered into a definitive agreement with Alameda Ventures Ltd. related to the previously disclosed credit facility, which is intended to help Voyager meet customer liquidity needs during this dynamic period.” That’s one way of putting it. The company received “US$200 million cash and USDC revolver and a 15,000 BTC revolver.”

This morning, we announced a definitive agreement with Alameda Ventures for a $200 million dollar cash / USDC revolver and a 15,000 BTC revolver.

Read today’s release: https://t.co/8wPfzcaI6K

— Voyager (@investvoyager) June 22, 2022

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As a reminder, yesterday transpired that FTX, also owned by Bankman-Fried, bailed out BlockFi with $250M. At the time, we described the situation as follows:

“Over the last few weeks, the crypto market has been trending down. The contagion effect of the Terra/ Luna extinction event rocked every company out there, most of all those who offered yield on cryptocurrency deposits like BlockFi and Celsius and hedge funds like Three Arrows Capital. These companies’ problems and possible liquidation of assets, in turn, sent the crypto market into even more turmoil.”

The Voyager case fits right into that description.

Sam Bankman-Fried’s Loan To Voyager, The Conditions

The rumors were already flying. On June 16th, analyst Dylan LeClair tweeted “Speculation here, but in its quarterly report, Voyager had loaned $320m to a singapore based entity named “counterparty b”. One has to wonder whether “counterparty b” was 3AC and if so, how much of a hit Voyager took?” The answer came quicker than anyone thought. 

Speculation here, but in its quarterly report, Voyager had loaned $320m to a singapore based entity named “counterparty b”.

One has to wonder whether “counterparty b” was 3AC and if so, how much of a hit Voyager took? $VOYG shares are down 33% over the last two days… pic.twitter.com/sCiYskwLEq

— Dylan LeClair 🟠 (@DylanLeClair_) June 16, 2022

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In the press release, Voyager explained the loan:

“As previously disclosed, the proceeds of the credit facility are intended to be used to safeguard customer assets in light of current market volatility and only if such use is needed. In addition to this facility, as of June 20, 2022, Voyager has approximately US$152 million cash and owned crypto assets on hand, as well as approximately US$20 million of cash that is restricted for the purchase of USDC.”

The loan comes with “certain conditions,” among them:

  •  “No more than US$75 million may be drawn down over any rolling 30-day period.”
  • “The Company’s corporate debt must be limited to approximately 25 percent of customer assets on the platform, less US$500 million.” 
  • “Additional sources of funding must be secured within 12 months.” 

Voyager Digital price chart on OTC | Source: TradingView.com

It’s All About Three Arrows Capital Right Now

The press release confirms the rumors, the Singapore-based entity named “counterparty b” was 3AC. “Voyager concurrently announced that its operating subsidiary, Voyager Digital, LLC, may issue a notice of default to Three Arrows Capital (“3AC”) for failure to repay its loan.” In a recent article, our sister site Bitcoinist broke down the hedge fund’s situation:

“The crypto fund had been directly in the crosshairs of the Luna crash with exposure of more than $200 million and speculated to be as high as $450 million. At first, the firm had appeared to bounce back from the Luna collapse but it would be soon obvious that 3AC was in a more perilous position than investors thought.”

The Voyager situation makes it even more obvious. The company’s “exposure to 3AC consists of 15,250 BTC and $350 million USDC”. So, the Alameda loan covers most of it. What did they have to give in return, though? Formally, “Alameda currently indirectly holds 22,681,260 common shares of Voyager (“Common Shares”), representing approximately 11.56% of the outstanding Common and Variable Voting Shares”. If everything goes well, Voyager has nothing to worry about. However, what if it doesn’t?

Voyager levered 3AC up with 650million of their customers money, leaving them with only 150million cash reserves.

Who tf is in charge of risk over there, Merrill Lynch?

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— Tyler (@ApeDurden) June 22, 2022

In any case, for those that like gossip, here’s the story as narrated by Voyager:

“The Company made an initial request for a repayment of $25 million USDC by June 24, 2022, and subsequently requested repayment of the entire balance of USDC and BTC by June 27, 2022. Neither of these amounts has been repaid, and failure by 3AC to repay either requested amount by these specified dates will constitute an event of default. Voyager intends to pursue recovery from 3AC and is in discussions with the Company’s advisors regarding the legal remedies available.”

Answers And Conclusions

The crypto industry as a whole is in a precarious situation. And there’s one question at the center of it, is Sam Bankman-Fried controlling the chaos or is he taking total control of the industry?

Featured Image by Sebastian Herrmann on Unsplash  | Charts by TradingView

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2:1 ratio of sellers

Cumberland Sees Massive OTC Moves During Crypto Market Rout — ‘Most Volume We’ve Seen This Year’

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Cumberland Sees Massive OTC Moves During Crypto Market Rout — ‘Most Volume We’ve Seen This Year’

During the last week, while crypto markets got hammered, digital currency-centric over-the-counter (OTC) trading desks were swamped with orders. The cryptocurrency OTC trading desk Cumberland, a subsidiary of DRW, explained that on June 13, the firm saw 30% more volume than the previous year-to-date high on May 13.

Cumberland Says ‘On Big Swings, More Volume Tends to Come to OTC Desks’

Over-the-counter (OTC) trading desks allow high-net-worth crypto traders to trade coins without affecting spot markets as much as they would trading on a traditional exchange. OTC trading desks also provide liquidity for big buyers that smaller exchanges cannot provide. A number of companies offer OTC services to crypto traders like Kraken OTC, Falconx, Cumberland, Athena Investment Services, Crypto Desk, B2C2, Bankhaus Scheich, Bitpanda Plus, and Coin Cola.

Amid the recent crypto market carnage, the DRW company Cumberland tweeted about the firm’s OTC flow during the past week and let people in on some of the moves that were made. “The most frequent question we’re asked on weeks like this is ‘what does the flow look like?’” Cumberland tweeted on June 14. “OTC flow gives some insights into how the market is handling these major moves,” the OTC trading desk added. Cumberland was founded in 2014, and over the last few years, it has become one of the top OTC desks worldwide.

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When Cumberland first started, news reports noted that the company was able to acquire massive amounts of bitcoin (BTC) via a few U.S. Marshalls’ operated auctions. Cumberland offers more than 30 different digital assets against 500 pairs, and the company claims to be “one of the largest liquidity providers in the cryptocurrency space.” Speaking about the recent crypto market rout, Cumberland disclosed that lots of crypto volume came directly to OTC desks.

Cumberland said:

On big swings, more volume tends to come to OTC desks, and yesterday was no exception; it was the most volume we’ve seen so far this year. In fact, it was 30% more volume than the previous YTD high, May 13th. Traders tend to use OTC during fast markets because it’s much easier to move size. Volumes were very BTC-centric, with about 75% of the total flow in bitcoin. ETH was the majority of the remainder. When looking to exit risk, traders tend to trade the most liquid products.

The crypto market bloodbath had shown a significant amount of leverage was wiped out during the last two weeks. Cumberland suggested that quite a bit of the flow on June 13 was liquidations. A number of crypto lending firms have been accused of being liquidated on very large positions in recent times such as Celsius. Large crypto hedge funds like Three Arrows Capital (3AC) are also being accused of having financial hardships and dealing with liquidations from over-leveraged positions.

“The flow ratio suggests a lot of the flow was liquidations, with a 2:1 ratio of sellers to buyers,” Cumberland’s Twitter thread concluded. “As always, Cumberland is proud to act as the backstop of liquidity during the most severe market moves.”

Tags in this story

2:1 ratio of sellers, 3AC, Athena Investment Services, B2C2, Bankhaus Scheich, Bitpanda Plus, BTC, Celsius, Coin Cola., Crypto Desk, crypto market bloodbath, Cryptocurrencies, Cumberland, Cumberland OTC, DRW, DRW Holdings, ETH, Falconx, Kraken OTC, Liquidations, OTC desks, OTC flow, OTC Trading, OTC trading desks, Three Arrows Capital (3AC), trade volume, U.S. Marshalls Auctions, volume

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What do you think about Cumberland’s summary of OTC flow from the recent crypto market bloodbath? Let us know what you think about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

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