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3AC Founders Blame Terra and GBTC Trades for Bankruptcy

Written by: Elena R

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Elena R

Elena is an expert in technical analysis and risk management in cryptocurrency market. She has 10+year experience in writing - accordingly she is avid journalists with a passion towards researching new insights coming into crypto erena.

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Jul 23, 2022

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The founders of Three Arrow Capital (3AC) told Bloomberg that the trade involving Greyscale Bitcoin Trust (GBTC), Terra Luna (LUNA), and UST tokens are responsible for the blowup of the crypto fund.

Kyle Davies and Su Zhu, the founders of the crypto fund firm 3AC, had previously confirmed that they took on some $200 million in losses related to LUNA and UST, now-imploded algorithmic stablecoin. The prices of the two tokens started plummeting in mid-May and fell to nearly zero later. 

Zhu explained, “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.” 3AC had also failed to flag risks related to LUNA.

3AC was one of Terra’s most outspoken bulls, it was also one of the biggest investors in the institutional bitcoin product, Greyscale Bitcoin Trust (GBTC). LUNA went into a loss over the course of a week in mid-May, whereas algorithmic stablecoin, terraUSD (UST) felt the loss after losing its intended peg with the US dollar. 

As GBTC was a regulated product,  it permitted buyers like 3AC to pay directly for shares by sending bitcoin to the trust. The shares could then be sold by holders on over-the-counter markets for a premium, which resulted in a substantial profit for the sellers and made the deal appealing to investors.

GBTC shares were locked for six months, the holders were making losses instead of profits and were actually in loss as the prices went down. The premium of GBTC switched to discount over the past year, reaching a record discount in June. This implies massive losses for investors like 3AC who had invested billions of dollars in the product. 

GBTC lost value during the market-wide decline. GBTC shares were traded at over $34 at the start before declining by more than 50 percent to $12 earlier this week. 

3AC in the hopes of market rebounding kept on borrowing from lenders until bitcoin fell to nearly $20,000 in late June. After losing money on Luna, its GBTC shares traded at discount, and an overall decline in the market led to the company not being able to pay back any of the loans.

The investors of 3AC are claiming that the defunct fund still owes them $2.8 billion, however, the court filing released on Monday shows the claims worth over $1 billion.

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Elena R

Elena is an expert in technical analysis and risk management in cryptocurrency market. She has 10+year experience in writing - accordingly she is avid journalists with a passion towards researching new insights coming into crypto erena.

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