Crypto hedge fund Three Arrows Capital (3AC) has filed for Chapter 15 bankruptcy in order to protect its U.S. assets. Currently a liquidation is taking place for the company in the British Virgin Islands after a court order from a judge. This occurred after claims that 3AC failed to pay $80 million that it owed to Deribit, a digital assets exchange.

Founded by former Credit Suisse traders Zhu Su and Kyle Davies, 3AC once managed an estimated $10 billion of assets in March. At its peak the fund was worth around $18 billion. The company purchased Bitcoin and other assets on leverage using funds from DAOs and CeFi firms like Voyager and BlockFi.

The unraveling of 3AC began once it started using borrowed funds to increase the size of their bets with Bitcoin and other cryptocurrencies. Teneo is the insolvency firm appointed to the British Virgin Islands case with 3AC and has told the U.S. court that a “significant number of creditors” will make claims against the hedge fund. 

Derivatives trading platform Deribit began the liquidation proceedings in the British Virgin Islands last week while 3AC agreed with the company’s terms. 3AC is also in arbitration in New York with Russel Crumpler, one of the company’s biggest creditors and liquidators.

Crumpler explained that “With many creditors seeking to enforce their rights to collect on the debtor’s outstanding debt obligations, the risk increased that the debtor would dissipate its assets without consideration of each individual lender’s ability to recoup its losses.”

Additionally, crypto brokerage firm Voyager Digital could possibly lose more than $670 million in loans made to 3AC. Late on Friday, Voyager announced that the company was suspending trading, deposits, withdrawals, and loyalty rewards for all customers until further notice. The company stated that it will be exploring “strategic alternatives” to recoup the losses.

Crypto lender and trading platform BlockFi also announced on Friday it sustained $80 million in losses due to 3AC. The firm now has a deal set with FTX U.S. for providing financing in return for an option to buy 3AC for $240 million.

Currently, 3AC is facing regulatory scrutiny in Singapore and the country’s Monetary Authority (MAS) reprimanded the company for providing false information. Singapore authorities have stated that their investigation of 3AC has been going on for a year. 3AC initially had their base of operations in Singapore and then later moved to the British Virgin Islands.

Zhu was known for pitching a “supercycle” thesis where mainstream adoption would continue to increase prices in the market. This conclusion led him and others to believe that a prolonged bear market for Bitcoin and other cryptocurrencies was not possible. 

Last month, Zhu stated on Twitter that “We are in the process of communicating with relevant parties and fully committed to working this out.”

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