Three Arrows Capital, a crypto hedge fund, has defaulted on a $650 million loan

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Crypto broker Voyager Digital issued a default notice on Monday to hedge fund Three Arrows Capital for failing to make required payments on a loan of more than $665 million, the latest sign of the financial turmoil that has rocked the world of cryptocurrencies as the value of coins across the market.

Voyager said it intends to recover the funds, which were lent in the amount of 15,250 bitcoin and $350 million in USDC stablecoin, a digital token whose value is pegged to the dollar.

“We are working hard and quickly to strengthen our balance sheet and pursue options so that we can continue to meet the liquidity requirements of clients,” said Stephen Ehrlich, CEO of Voyager.

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The company said it was in discussions with advisors to review legal remedies.

Three Arrows Capital did not immediately respond to a request for comment.

The loan default comes at a perilous moment for cryptocurrencies, as industry players and investors prepare for a “crypto winter,” following a price crash, sudden layoffs, and a renewed and hardened sense of skepticism that has turned into condemnation among critics and market watchers. The high level of interdependence in the industry has also given rise to warning signals. Since many companies borrow from each other and invest in each other, the risks to investors are magnified because failures in one institution can be transmitted to others.

Across the industry, investors have incurred huge losses. Bitcoin, the most prominent cryptocurrency, on Monday traded near $20,700, well below its November peak of nearly $69,000. Meanwhile, the market capitalization of all cryptocurrencies is just under $1 trillion; Seven months ago, that number approached $3 trillion.

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Although the old financial markets have also worsened in recent months — due to fears of an upcoming recession, historically high inflation, the ongoing supply shocks triggered by the pandemic, and the war in Ukraine — the downturn in the crypto world has been much more severe than Wall Street. . The S&P 500, widely seen as a benchmark of financial performance over time, is down 18 percent so far this year.

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The depths of bitcoin’s decline shed light on the highly volatile nature of cryptocurrencies and how this astonishing growth that launched portfolios could easily be reversed.

Created in 2012 by Zhu Su and Kyle Davies, Three Arrows Capital is known for its bullish moves on cryptocurrencies. Zhu took the position that the value of cryptocurrencies will continue to rise as more people invest in them and their use becomes more popular. But he recently admitted he was wrong, saying on Twitter in May that the price thesis was “unfortunately wrong,” adding, “But cryptocurrency will continue to thrive and change the world every day.”

In a subsequent tweet earlier this month, Zhu’s tone turned sharper. “We are in the process of communicating with the relevant parties and we are fully committed to working to resolve this matter,” he said, without explicitly stating what the issue is or who the relevant parties are. Reports of financial hardship soon followed.

Days after Zhu’s hidden tweet, a file appeared financial times It reported that Three Arrows Capital failed to meet lenders’ demands to show additional funds after its bets on the cryptocurrency failed.

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The loan default follows a decision made by the embattled crypto bank Percentage to stop withdrawals by nearly 2 million users, sending shock waves through the crypto market, and confirming fears that the biggest names in the sector lack meaningful financial oversight. However, the potential for the disruptions to spread to the larger economy appears limited.

Rampant theft has also hit crypto investors, raising growing skepticism from critics who question the cryptocurrency’s enduring financial vulnerabilities.

Last week, blockchain company Harmony announced that hackers have seized nearly $100 million in cryptocurrency by exploiting the company’s Ethereum Bridge and Binance Chain. Blockchain acts as a decentralized ledger, a publicly available and verifiable record of transactions but not maintained by any single entity. The blockchain bridge serves as a means for decentralized transfers between ledgers.

As the value and popularity of tokens has ballooned in recent years, the infamous interest among criminals has increased. Cryptocurrency-related crimes hit an all-time high of $14 billion last year, according to research from decompositionUp from $7.8 billion in 2020.

Although many first-time investors have flocked to the promise of cryptocurrencies, and their sometimes astounding returns, the market has turned into an even more pessimistic situation.

With interest rates rising and a host of economic hardships dragging down high-rise companies, investors are also fleeing speculative assets, such as cryptocurrencies. He owns some of the biggest players in the industry, including Coinbase and Gemini Job cancellation and hiring freezereflecting the icy mood now defining the once-hot market.

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