Crypto Hedge Fund CEO Breaks Silence On Rumored Insolvency Issues

Updated by Ryan James
In Brief
  • Mass liquidations have sparked rumors that crypto hedge fund Three Arrows Capital is having insolvency issues.
  • The CEO of Three Arrows capital tweeted that the company is resolving the issue, without being specific.
  • Three Arrows had invested in the Luna Foundation Guard.
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As the crypto market gets clobbered by threats of a recession and Celsius Network pausing withdrawals, Three Arrows Capital CEO Zhu Su has broken the silence on his company’s rumored liquidity woes.

A month after the TerraUSD de-pegging and mere days after crypto lender Celsius suspended withdrawals, hedge fund Three Arrows Capital’s co-founder and CEO broke the silence on mass liquidations observed by market pundits.

A Twitter user going by the pseudonym “MoonOverlord” sparked rumors of possible insolvency after noting that Zhu and Three Arrows co-founder Kyle Davies hadn’t tweeted for several days, with Zhu deleting his Instagram account and removing ETH, AVAX, LUNA, SOL, NEAR, MINA and NFTs from his Twitter bio, leaving only BTC.

Speculation on Three Arrows’ and its founders’ activities came into sharper focus when the company withdrew 80,000 staked ETH from DeFi platform AAVE and swapped 38,900 worth of stETH for 36,700 ETH. Considering that the ratio for ETH to stETH is less than 1:1 and will only become 1:1 after the Ethereum upgrade, some market pundits say this could clearly indicate liquidity shortages. The anticipated upgrade of the Ethereum network to proof-of-stake will allow for a 1:1 ratio between ETH and staked ETH.

Zhu put rumors of liquidity problems to bed through a cryptic tweet published on June 14, 2022.

“We are in the process of communicating with relevant parties and fully committed to working this out,” he tweeted. Zhu had previously blasted Ethereum on Twitter, saying that he would “abandon” the world’s second-largest cryptocurrency by market cap.

Three Arrows holds bitcoin through Grayscale

Recent data from Nansen suggests that Three Arrows Capital manages about $10 billion, including more than 5% of the Grayscale Bitcoin Trust. The company does not directly own bitcoin, but entrusts the management of the flagship digital currency to Grayscale. This ownership model contrasts with MicroStrategy, the largest corporate holder of bitcoin, which directly holds the asset on its balance sheet.

Company suffered because of Luna crash

Last month, the hedge fund suffered a heavy blow after co-investing $1 billion with Jump Crypto in Luna, the sister coin to TerraUSD that helped prop up its dollar peg. Luna collapsed to almost zero about a month ago, sending shockwaves through the broader crypto market and triggering a market selloff that saw the prices of bitcoin, ether, and other smaller cryptocurrencies plunge. Three Arrows’ investment contributed funds o the Luna Foundation Guard, a reserve created to help maintain the peg of UST if Luna fails. The reserves ultimately were unable to support the stablecoin recovery.

Wu Blockchain reported that Three Arrows lost $31 million trading on Bitfinex last month. The crypto hedge fund moved its headquarters to Dubai in late April.

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