Crypto Hedge Fund Three Arrows Capital Files for Bankruptcy in US

Crypto hedge fund Three Arrows Capital reportedly filed for Chapter 15 bankruptcy in a New York federal court on Friday (1 July), just three days after it entered into liquidation for defaulting on a USD 667 million loan to Canada's Voyager Digital.

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Last week, Voyager Digital issued a default notice to Three Arrows for its failure to pay back the loan, but the firm was unable to meet the demand after its crypto bets turned sour amid the market sell-off, and entered into liquidation in the British Virgin Islands. As reported, the Chapter 15 filing will allow Three Arrows to protect its US assets even as its BVI assets are liquidated.

Later in the week, MAS (Monetary Authority of Singapore) also reprimanded Three Arrows for providing false information and exceeding the AUM threshold allowed for Singapore-authorised registered fund management companies. MAS had said it began investigating contraventions by the company since June 2021, and that recent developments have prompted it to assess whether there have been more breaches.

Three Arrows is reported to have lost at least USD 400 million during the crypto market crash this year. Its failure to repay its debts has contributed to a broader liquidity crisis that has rippled through crypto markets, particularly impacting firms that the hedge fund had borrowed from in large sums.

Voyager Digital now holds USD 685 million in crypto assets, compared with the USD 1.12 billion it loaned out. It has reportedly secured a USD 485 million line of credit from Alamdeda Ventures. After initially cutting its withdrawal limits from USD 25,000 to USD 10,000, Voyager has now temporarily suspended trading, deposits and withdrawals on its platform – to allow it additional time to explore "strategic alternatives with various interested parties".

Crypto platform Deribit meanwhile claims that Three Arrows Capital has failed to repay a loan of USD 80 million. Bancor, CoinFlex, Babel Finance and Vauld are also also said to be under pressure from the liquidity crunch. Celsius Network was one of the earliest victims of the liquidity crunch, freezing all account withdrawals and transfers since 13 June, citing "extreme market conditions".