Three Arrows Capital Founders Cite 3 Key Crypto Trades That Blew Up the Firm 38
The founders and partners of crypto hedge fund Three Arrows Capital, which filed for bankruptcy earlier this month, have broken their silence on just how they lost billions of dollars they borrowed from other firms. From a report: Su Zhu and Kyle Davies attribute 3AC's collapse to over-exposure to Terra, staked Ethereum, and Grayscale's Bitcoin trust. Zhu said in the case of Terra, he initially didn't see any red flags: "What we failed to realize was that Luna was capable of falling to effective zero in a matter of days and that this would catalyze a credit squeeze across the industry that would put significant pressure on all of our illiquid positions."
"We began to know Do Kwon on a personal basis as he moved to Singapore," said Zhu. "And we just felt like the project was going to do very big things, and had already done very big things. If we could have seen that, you know, that this was now like, potentially like attackable in some ways, and that it had grown too, you know, too big, too fast." Another popular trade among the ailing crypto companies was staked Ethereum, or stETH. Every stETH will in theory be redeemable for one Ethereum after the network migrates to a proof-of-stake (PoS) consensus mechanism in September. However, one of the knock-on effects of Terra's collapse was that stETH began to miss its peg. This attracted opportunistic traders to bet against the token: "Because Luna just happened, it was very much a contagion where people were like, 'OK, are there people who are also leveraged long staked Ether versus Ether who will get liquidated as the market goes down?' So the whole industry kind of effectively hunted these positions, thinking that, you know, that because it could be hunted essentially." Zhu also attributed 3AC's collapse to exposure to Grayscale's Bitcoin Trust (GBTC), an investment product for institutional investors who want exposure to Bitcoin without the risks of directly holding it. GBTC is currently trading at a 30% discount to BTC.
"We began to know Do Kwon on a personal basis as he moved to Singapore," said Zhu. "And we just felt like the project was going to do very big things, and had already done very big things. If we could have seen that, you know, that this was now like, potentially like attackable in some ways, and that it had grown too, you know, too big, too fast." Another popular trade among the ailing crypto companies was staked Ethereum, or stETH. Every stETH will in theory be redeemable for one Ethereum after the network migrates to a proof-of-stake (PoS) consensus mechanism in September. However, one of the knock-on effects of Terra's collapse was that stETH began to miss its peg. This attracted opportunistic traders to bet against the token: "Because Luna just happened, it was very much a contagion where people were like, 'OK, are there people who are also leveraged long staked Ether versus Ether who will get liquidated as the market goes down?' So the whole industry kind of effectively hunted these positions, thinking that, you know, that because it could be hunted essentially." Zhu also attributed 3AC's collapse to exposure to Grayscale's Bitcoin Trust (GBTC), an investment product for institutional investors who want exposure to Bitcoin without the risks of directly holding it. GBTC is currently trading at a 30% discount to BTC.
How? (Score:5, Insightful)
just how they lost billions of dollars they borrowed from other firms.
Would that be "because they were spending that money on tulip bulbs"?
Re:How? (Score:4, Insightful)
just how they lost billions of dollars they borrowed from other firms.
Would that be "because they were spending that money on tulip bulbs"?
Or "because we were blinded by all the dollar signs we were hallucinating".
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Re: How? (Score:2)
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Sorry to interrupt the anti-crypto circlejerk with my own anecdotal reality. Carry on now folks! Tulips! Tuuulips! Evil drugs! Crypto stole my wife!
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It's too bad that if they don't pretty much convert those crypto coins to an actual tangible asset in a real hurry, they might just get paid a fraction of what they expected.
It ain't a currency.
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Good for you. I've tried selling used electronics for cryptocurrency and never got any takers. Turns out when you're dealing in crypto, people assume you're a scammer, since they have no recourse if you ship them a brick. Also, most people consider having to purchase cryptocurrency to be huge hassle, compared against other ways of sending money where you can just directly send.. money.
For legitimate dealings, cryptocurrency serves no purpose.
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If they are idiots, what are the people who loaned them the money idiot-idiots, super-idiots, mega-idiots?
Suckers.
Exposure (Score:3)
Bitcoin Trust (GBTC), an investment product for institutional investors who want exposure to Bitcoin without the risks of directly holding it
It's cards all the way down, folks.
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I can get why, as an institutional investor, you would like to "hold" gold or silver but not have to store it in a vault yourself. Or why speculators in coal futures would prefer their contracts be marked "not for delivery". [thedailywtf.com] But bitcoin? That makes a lot less sense, certainly if you're into it for the long haul. So I'd chalk that one up to "did not do the research"
Holding a small amount of bitcoin, personally, on a disk with an offsite backup, isn't really that complex. Now explain to me, if it becomes a reasonable chunk of your wealth how do you do it properly? You want your kids to be able to inherit it if you die but you don't want them to be able to use it now without your permission. You want to be able to access it from your laptop but you don't want to have full access and so on. In the end, most people end up keeping their wallets with some bitcoin exchange s
GBTC to blame? (Score:3)
How do you possibly blame an index fund for a business failure?
GBTC trading at a discount is an OPPORTUNITY. Grayscale is a legitimate, rock-solid company.
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How do you possibly blame an index fund for a business failure?
GBTC trading at a discount is an OPPORTUNITY. Grayscale is a legitimate, rock-solid company.
An index fund that's trading 30% below the index it's supposed to be following is an OPPORTUNITY to get your money as far away from it as you can.
To summarise (Score:5, Insightful)
Some might call that combination greed. Others would say it was bad luck. Personally its way too risky and not even close to "investment quality"
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It seems the "reason" (excuse) for all this nonsense is always "We couldn't have known."
Oh really? You could not have known? You mean, aside from literally EVERYONE outside of your crypto bubble telling you it's a really, really, fucking, terrible idea....
I don't honestly know what's wrong with these people. Only thing I can realistically imagine is that they're just so blinded by greed their brains seep out their ears or something.
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They were literally 21 when giant banks exploded (Score:4, Insightful)
They were literally 21 when giant banks exploded and they didn't internalize any lesson when, like, Washington Mutual explodes in a hot minute? Incredible
Shocked? How? (Score:5, Insightful)
We've learned our lesson... (Score:2)
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I call bullshit (Score:3)
PoS? (Score:1)
crypto scams (Score:2)
In the unregulated crypto world all old scams are new again. Must be fun to figure out why we have regulations, the hard way.
> We began to know Do Kwon on a personal basis as he moved to Singapore
Sounds like a classic confidence scheme to me.
Though all participants may also be trying to fool themselves here at the same time. Seems that the human mind really wants to follow intuition over facts, you try to find facts that fit a conclusion you already have.
I would be worried (Score:2)
If I were trading that much money in crypto I wouldn't be able to sleep at night, because of the volatility. The fact that these guys didn't have a problem with investing the companies money and thought they could "get a feel" for the market shows thier lack of experience.
Hey guys (Score:5, Informative)
"We began to know Do Kwon on a personal basis as he moved to Singapore,"
Hey guys, hey, I know this guy personally. Like, we're good friends, go out all the time, I've fed his cat. He's a good guy. You can trust him. Going to do big things!
That totally sounds like what you want to hear from your fund manager.
Unreal (Score:2)
House of cards... (Score:2)
So, what do we have here?
Right now, a trillion dollars of money riding on ... what? - a concept? - that's the current market cap of cryptocurrency, at least for the next week or so.
There is _still_ no concrete use-case for cryptocurrency - despite being around since 2009.
We're now looking at 13 years of speculation, which is a piss-poor outlook on any new "tech", in anyones book.
The dotcom boom/bust, played out over a similar time period and resulted in an actual outcome, which, for better or worse, has com
Are they admitting negligence? (Score:2)
All crypto currencies are susceptible to taking to zero in a matter of days.
Negligence as a CEO of director can leave you personally liable.
Too many black swans (Score:2)
If we could have seen that... (Score:2)
Sour grapes (Score:2)
TL;DR version (Score:2)