Robert Steinadler, 9 months ago
The lending crisis this year had a devastating effect on the market. It turned out that certain lenders took a high risk by lending money to parties who operated with way too much leverage. One of these parties was Three Arrows Capital, a crypto hedge fund that is not only involved in trading but was also investing in a lot of companies and crypto projects.
According to a report 3AC is being liquidated in the British Virgin Islands. Why is this good news?
The reason for 3ACs downfall is simple, the hedge fund borrowed too much money and took very risky overleveraged bets. In this case, 3AC was betting that the market would turn around. The company already took a $200 million loss when Terra crashed.
But since the market did not turn around the positions of 3AC got liquidated at some point and lenders as well as exchanges were asking for their money. In short: they got margin called big time.
This had a domino effect throughout the market. Lenders like Celsius, Voyager Digital, and BlockFi among others had their own struggle with the falling prices or even direct exposure to 3AC.
The contagion effects of 3ACs downfall and the lenders that were somehow involved might still be a danger to certain players in the market. But the good news is that the story is finally coming to an end. Of course, there might be the risk that with the liquidation of 3AC more pressure and uncertainty will arise.
According to a report of SkyNews, the liquidation of Three Arrows Capital was ordered by a court in the British Virgin Islands on June 27th. The upside of this move is that even though it might create more uncertainty for a brief period of time, the market and its participants will have more certainty about what to expect when the whole process that is due is finally over.
Coming clear about the impact is the first step toward recovery for the market. It’s a painful process but it has to be done and the obvious result is that only healthy companies will be left on the field. There is a German proverb that is ascribed to the Prussian Major Ferdinand von Schill which seems to be quite fitting for the current situation:
“Rather a calamitous end than endless calamity.”
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