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Crypto-currency broker Voyager Digital on Monday issued a default warning to hedge fund Three Arrows Capital for failing to make required payments on a loan worth more than $ 665 million, the latest sign of financial turmoil it has shaken the world of cryptocurrencies as a value. of chips across the market has plummeted.
Voyager said it intends to recover the funds, which were lent in 15,250 bitcoins and $ 350 million to the USDC stablecoin, a digital token whose value is tied to the dollar.
“We are working diligently and quickly to strengthen our balance sheet and look for options so that we can continue to meet customer liquidity demands,” said Stephen Ehrlich, CEO of Voyager.
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The company said this in talks with advisors to review legal remedies.
Three Arrows Capital did not immediately respond to a request for comment.
Non-payment of the loan comes at a dangerous time for cryptocurrencies, as industry players and investors prepare for the “crypto winter,” after falling prices, abrupt layoffs and a sense of renewed and emboldened skepticism that has become the condemnation among market critics and observers. The high level of interconnection in the industry has also shown warning signs. As many companies take out loans and invest in each other, the risks for investors widen because the failure of one institution could cascade into others.
Across the industry, investors have suffered staggering losses. Bitcoin, the most prominent cryptocurrency, was trading at about $ 20,700 on Monday, well below its November high of about $ 69,000. Meanwhile, the market value of all cryptocurrencies was below $ 1 trillion; Seven months ago, that figure was close to $ 3 trillion.
Although inherited financial markets have also become bitter in recent months, due to fears of an impending recession, historically high inflation, persistent supply shocks caused by the pandemic and war in Ukraine, the decline of the crypto world has been much more serious than that of Wall Street. . The S&P 500, widely regarded as a benchmark for financial performance over time, has fallen 18 percent so far this year.
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The depth of bitcoin’s fall highlights the highly volatile nature of cryptocurrencies and how such amazing growth that it launched wallets into the sky can be reversed just as easily.
Three Arrows Capital was created in 2012 by Zhu Su and Kyle Davies, and is known for its crypto bullish moves. Zhu had taken the position that the value of cryptocurrencies would continue to increase as more people invested in them and their use became more common. But he recently acknowledged he was wrong, saying on Twitter in May that his pricing thesis was “sadly wrong,” adding, “but cryptography will still thrive and change the world every day.”
In a tweet later this month, Zhu’s tone became more serious. “We are in the process of communicating with the relevant parties and we are fully committed to resolving it,” he said, without explicitly saying what the problem was or who the relevant parties were. Reports of financial difficulties soon followed.
Days after Zhu’s cryptic tweet, the Financial Times reported that Three Arrows Capital had been unable to meet lenders ’demands to show additional funds after their bets on digital currency had gone wrong.
The non-payment of the loan comes after the decision of the cryptocurrency bank assaulted Celsius to stop the withdrawals of its nearly 2 million users, sending shockwaves to the cryptocurrency market and underlining the concern that the most important names in the sector do not have significant financial supervision. However, the possibility of disruptions spilling over into the larger economy seems limited.
Unbridled theft has also affected cryptocurrency investors, provoking growing skepticism from critics questioning the enduring financial vulnerabilities of digital currencies.
Last week, blockchain company Harmony announced that hackers had confiscated approximately $ 100 million in cryptocurrency by exploiting the company’s Ethereum Bridge and Binance Chain. Blockchain functions as a decentralized ledger, a transaction log that is publicly available and verifiable, but is not maintained by any entity. A blockchain bridge works as a means of decentralized transfers between ledgers.
As the value and popularity of tokens have increased in recent years, so has the nefarious interest among criminals. Cryptography-related crimes hit a new all-time high of $ 14 billion last year, according to Chainalysis research, compared to $ 7.8 billion in 2020.
While many early investors have turned to the promises of digital currencies and their sometimes surprising returns, the market has shifted to a much more pessimistic stance.
As interest rates rise and a number of economic hardships have dragged high-flying companies, investors have also shunned speculative assets, such as cryptocurrencies. Some of the key players in the industry, such as Coinbase and Gemini, have eliminated positions and frozen hiring, reflecting the icy mood that now defines the previously hot market.