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Businesses Bitcoin The Almighty Buck

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.
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Three Arrows Capital Founders Cite 3 Key Crypto Trades That Blew Up the Firm

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  • How? (Score:5, Insightful)

    by Joce640k ( 829181 ) on Saturday July 23, 2022 @08:04AM (#62726958) Homepage

    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)

      by Black Parrot ( 19622 ) on Saturday July 23, 2022 @08:09AM (#62726966)

      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".

      • I think it's "Here's some bullshit PR spin because we made all of our money and we are hoping the buzzword bingo PR spin minimizes the number of lawsuits from the suckers that gave us their money."
    • Tulips are real and quite beautiful. While crypto is used only to pay kidnappers or company encryption ransom, to buy guns, drugs and child porn, or to make 'non fungible' ('impossible to sell) jpeg 'art of yawning chimps wearing yacht hats. No real comparison. Except for the massive scam and then mysterious 'collapse' with all money seemingly evaporated. But that's true of all end game ponzi schemes,
      • I can't pay programmers, content writers, and web designers with tulips. I wouldn't sell my own services for tulips. I can with crypto though. It's been a very helpful technology. Happy to have cut PayPal out of the loop. Ever sold a digital good/service only for PayPal to take your money due to some cunt making a fraudulent claim? You're SOL.

        Sorry to interrupt the anti-crypto circlejerk with my own anecdotal reality. Carry on now folks! Tulips! Tuuulips! Evil drugs! Crypto stole my wife!
        • 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.

        • 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.

    • If they are idiots, what are the people who loaned them the money idiot-idiots, super-idiots, mega-idiots?
      • If they are idiots, what are the people who loaned them the money idiot-idiots, super-idiots, mega-idiots?

        Suckers.

  • by Joce640k ( 829181 ) on Saturday July 23, 2022 @08:06AM (#62726962) Homepage

    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.

  • by haggie ( 957598 ) on Saturday July 23, 2022 @08:28AM (#62726986)

    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.

    • by Anonymous Coward

      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)

    by petes_PoV ( 912422 ) on Saturday July 23, 2022 @08:29AM (#62726994)
    Unwarranted optimism, lack of experience and not considering the potential downside.
    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"
    • by splutty ( 43475 )

      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.

      • This is like a 5 year old saying they couldn't have known that their model rocket was going to accidentally burn down the house. The reason the 5 year old doesn't know is he lacks a basic understanding of parabolic trajectories the same way these folks lack a basic understanding of economics.
  • by NobleNobbler ( 9626406 ) on Saturday July 23, 2022 @08:52AM (#62727026)

    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)

    by dhrabarchuk ( 1745930 ) on Saturday July 23, 2022 @08:52AM (#62727028)
    They were surprised a crypto backed by crypto could be volatile? What idiots.
  • ... and we won't make the same mistake again until next time.
  • by etash ( 1907284 ) on Saturday July 23, 2022 @09:21AM (#62727078)
    cheap excuses, from people with 20 million dollar mansions who ran away as fast as they could when they could see that shit was going to hit the fan. put them in jail. crypto space is full of scammers.
  • "proof-of-stake (PoS)" that reminds me of another acronym..
  • 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.

  • 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)

    by ceoyoyo ( 59147 ) on Saturday July 23, 2022 @11:08AM (#62727292)

    "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.

  • I understand the tendency and impulse to listen to the smartest person in the room. I just can't conceive of a room where anyone involved here was the smartest person. I mention this because any barely literate halfwit understood these things as pyramid scams and gave them a wide berth.
  • 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

  • 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.

  • This market is surrounded by black swans.
  • "If we could have seen that..." will probably be the quote of all the other crypto pyramid scheme victims once their respective pyramids collapse. Perhaps they should be saying instead "if we only listened to sane people...", through I'm sure they are all thinking "if we only got out at the peak...".
  • There is no doubt that there is money to be made on all pyramid schemes like purely speculative, hype driven virtual tokens. The problem of course is that in the end they all collapse spectacularly, therefore the secret is to know when to get in and when to get out. These are just guys who didn't guess correctly, hence now blaming the world around them. The money they lost, which I'm sure was mostly other people's money, fed some of the winners in the crypto speculation pyramid. That said, I'm going to spec
  • "We did not do any proper due diligence".

"It's like deja vu all over again." -- Yogi Berra

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