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Deribit and Among Creditors Who Pushed for 3AC Liquidation

2 mins
Updated by Geraint Price
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In Brief

  • Deribit and Blockchain pushed for liquidation of Three Arrows Capital.
  • The hedge fund borrowed bitcoin and ether from Deribit in 2020.
  • Deribit becomes the latest lender to cry foul as 3AC's extensive borrowing comes back to bite.
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Deribit and exchanges were among the creditors who pushed for the liquidation of embattled crypto hedge fund Three Arrows Capital (3AC).

On June 11, 3AC breached a stipulation of its agreement with Deribit that it would maintain a minimum balance in its account, causing the derivatives exchange to liquidate the hedge fund’s position on June 15, reported Bloomberg.

Deribit also terminated the contract between the companies and demanded payments of loans, any accompanying interest, and the negative asset value of the account.

Deribit loaned crypto to 3AC

3AC had borrowed 1,300 bitcoin and 15,000 ether in March 2020 from Deribit. When cryptocurrency prices started falling earlier this year, it struggled to maintain the minimum collateral.

Meanwhile, a spokesman for said: “We believe Three Arrows Capital defrauded the crypto industry and intend to hold them accountable to the fullest extent of the law.” 

Restructuring firm Teneo indicated that it would set up a website for creditors wishing to claim against 3AC after a British Virgin Islands court ordered the hedge fund’s liquidation.

Deribit and join lenders BlockFi and broker Voyager Digital in liquidating Three Arrows Capital’s position, highlighting the extent to which the embattled hedge fund borrowed funds to bolster its bets.

3AC had also lost heavily following the collapse of the TerraUSD stablecoin, a loss of $200 million, which co-founder Kyle Davies said it could absorb. 

But crashing crypto prices proved an unexpected shock too severe to absorb, as bitcoin bottomed at $17,600 on June 18 from a high of $69,000 in Nov. 

Ethereum dropped from highs of $4,878 to $897.49 in about the same period as macroeconomic pressures from rising interest rates and fears of a recession led to a sell-off in the cryptocurrency market.

Lender Celsius also spooked markets after announcing the freezing of withdrawals in early June amidst what it cited were difficult market conditions.

3AC’s role in the Grayscale saga

Elsewhere, Grayscale Investments is suing the Securities and Exchange Commission (SEC) for rejecting its application to convert its Grayscale Bitcoin Trust to a physically-backed Bitcoin exchange-traded fund. 

Three Arrows Capital had held a position in the Grayscale Bitcoin Trust of over $1 billion. It looked to profit from the discount GBTC was trading at compared to Bitcoin. 

Grayscale CEO Michael Sonnenshein said in an interview with Bloomberg that while Three Arrows had participated directly in the private placement, a sale of GBTC shares to predetermined investors and companies, after the statutory holding period, Grayscale has no visibility of where the shares reside. He emphasized that despite this opacity, 3AC is still part of GBTC.

Following the SEC’s approval of the ProShares Bitcoin Strategy Fund in Oct, Deribit and B2C2, a Japanese specialist crypto trading firm, said that Ethereum whales had become bullish about the possibility of an Ethereum-linked ETF in 2022 and were betting Ethereum to increase to $15K after its peak in Nov

Ethereum’s current price and market volatility may well put such speculation to bed.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...