The cryptocurrency market faced another wave of turbulence on June 27, 2022, as a court in the British Virgin Islands officially ordered the liquidation of beleaguered hedge fund Three Arrows Capital (3AC). The ruling marked a pivotal moment in what has become the most significant contagion event to hit the crypto industry since the collapse of TerraUSD in May.
TL;DR
- A British Virgin Islands court ordered the liquidation of Three Arrows Capital
- Teneo Consulting appointed as liquidator to manage the wind-down process
- Voyager Digital issued a formal default notice for $665 million in unpaid loans
- Bitcoin traded at approximately $20,735 amid extreme market fear
- Total crypto market cap struggled to hold above $900 billion
BVI Court Hands Down Liquidation Order
The British Virgin Islands court decision to order the liquidation of Three Arrows Capital represented the culmination of weeks of speculation about the hedge fund’s solvency. Founded by Su Zhu and Kyle Davies, 3AC had been one of the most prominent crypto investment firms, managing an estimated $10 billion in assets at its peak. The court appointed Teneo, a global consulting firm, as the official liquidator tasked with overseeing the orderly wind-down of 3AC’s remaining assets.
The liquidation order came after creditors grew increasingly concerned about 3AC’s inability to meet margin calls and repay loans. The fund had taken on significant leverage during the bull market, accumulating large positions in Bitcoin, Ethereum, and various DeFi protocols. When the market turned sharply lower in the second quarter of 2022, those leveraged positions began to unravel rapidly.
Voyager Digital Issues Default Notice
Adding to the pressure, cryptocurrency broker Voyager Digital disclosed that it had issued a formal notice of default to Three Arrows Capital. The default covered a massive loan consisting of 15,250 Bitcoin and $350 million in USDC, with a combined value of approximately $665 million at the time. Voyager’s exposure to 3AC sent its shares plummeting over 24%, triggering trading halts and raising serious questions about the broker’s own solvency.
The default notice from Voyager underscored the interconnected nature of crypto lending and borrowing. When one major borrower fails, the ripple effects spread rapidly across the ecosystem, threatening lenders, exchanges, and other institutions that had extended credit based on assumptions about 3AC’s creditworthiness.
Bitcoin Struggles at $20,735
Against this backdrop of institutional failures, Bitcoin itself was fighting to maintain critical support levels. BTC was trading at approximately $20,735 on June 27, having touched a daily low near $20,620. The daily high reached just $21,478, reflecting the subdued trading activity and cautious sentiment that had gripped the market. The Crypto Fear and Greed Index remained firmly in “Extreme Fear” territory, registering a score of approximately 10 to 12 out of 100.
The broader cryptocurrency market capitalization was struggling to stay above the $900 billion mark, a dramatic decline from the nearly $3 trillion peak reached in November 2021. Ethereum was changing hands at roughly $1,194, while other major altcoins posted similarly steep losses over the preceding weeks.
Contagion Fears Grip the Industry
The Three Arrows Capital liquidation order intensified concerns about broader contagion throughout the crypto lending ecosystem. Multiple platforms had already begun restricting withdrawals and reducing exposure to troubled counterparties. The fear was that 3AC’s liquidation could force the sale of its remaining crypto holdings, putting additional downward pressure on already battered markets.
Industry analysts noted that the speed of 3AC’s downfall — from one of the industry’s most respected funds to court-ordered liquidation in a matter of weeks — demonstrated the unique risks of leverage in crypto markets. Unlike traditional finance, where bankruptcy proceedings can take months or years, crypto insolvencies can cascade with remarkable speed due to the 24/7 nature of markets and the transparency of on-chain transactions.
Why This Matters
The Three Arrows Capital liquidation represents a watershed moment for the cryptocurrency industry. It exposed the fragility of leveraged crypto investment strategies and highlighted the dangerous interconnectedness of digital asset lending. For market participants, the events of late June 2022 served as a stark reminder that risk management practices in crypto still lag far behind traditional finance. The contagion from 3AC would continue to ripple through the industry for months, contributing to the eventual bankruptcies of several major crypto lenders and fundamentally reshaping the competitive landscape of crypto financial services.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
3AC going from $10b AUM to a BVI liquidation order in like two weeks. su zhu really thought leverage only goes up
two weeks is generous. the writing was on the wall when they couldnt meet margin calls in june
they were getting margin called in may already. su zhu just kept tweeting through it like everything was fine
Rudy H. su zhu had multiple chances to deleverage in april when ETH was still above 2500. ego killed that fund more than the market did
the $665m voyager default notice was the real gut punch. retail users are last in line as always
retail was never getting that $665m back. voyager users got pennies while liquidators collected fees for years
3AC going from $10B AUM to a BVI liquidation order in weeks because they couldnt meet margin calls on GBTC and stETH. su zhu was literally borrowing against illiquid positions to buy more illiquid positions
creditor_class_ borrowing against illiquid stETH to buy more illiquid GBTC. the whole portfolio was a duration mismatch waiting to blow up
stETH to GBTC trade was the most leveraged basis play in history. they were simultaneously long duration and short liquidity on both sides
Su Zhu going from CNBC appearances about regenerative health to radio silence was instant. guy understood leverage only works in one direction until it doesnt
su zhu tweeting about mental health from a yacht while his fund owed 3.5 billion. peak crypto
the deleted yacht tweet while owing voyager $665M is peak su zhu. guy was posting about regenerative health while his creditors were getting margin called
the yacht tweet was deleted but screenshots are forever. guy owed billions and was posting about regenerative health