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Crypto hedge fund Three Arrows Capital plunges into liquidation as market crash takes toll

Key Points
  • Major cryptocurrency hedge fund Three Arrows Capital has fallen into liquidation, a person with knowledge of the matter told CNBC.
  • Teneo Restructuring has been brought on board in the last few days to deal with the liquidation process.
  • A slump in digital currency prices, which has seen billions of dollars wiped off the market in recent weeks, has hurt 3AC and exposed a liquidity crisis at the company.
Crypto hedge fund Three Arrows Capital plunges into liquidation. This is how it happened
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Three Arrows Capital plunges into liquidation. Here's how it happened

Major cryptocurrency hedge fund Three Arrows Capital has fallen into liquidation, a person with knowledge of the matter told CNBC, marking one of the biggest casualties of the latest so-called "crypto winter."

Teneo has been brought on board in the last few days to deal with the liquidation process, the person, who requested anonymity because they were not authorized to discuss the matter publicly, said.

Sky News first reported the liquidation story.

Three Arrows Capital, or 3AC as it is also known, did not respond to a request for comment when contacted by CNBC.

Teneo is in the very early stages of the liquidation process, the person said. The restructuring firm is taking steps to realize the assets 3AC has, then it will set up a website in the next day or two with instructions for how creditors can get in touch to make any claims, the source added.

3AC, co-founded by Zhu Su and Kyle Davies, is one of the most prominent crypto hedge funds (which focus on investments in digital assets like cryptocurrencies) around and is known for its highly leveraged bets. Zhu has extremely bullish views on bitcoin.

But a slump in digital currency prices, which has seen billions of dollars wiped off the market in recent weeks, has hurt 3AC and exposed a liquidity crisis at the company.

Bitwise's Matt Hougan breaks down what crypto investors should watch after Three Arrows default
VIDEO5:5405:54
Bitwise's Matt Hougan breaks down what crypto investors should watch after Three Arrows default

On Monday, 3AC defaulted on a loan from Voyager Digital made up of $350 million in the U.S. dollar-pegged stablecoin, USDC, and 15,250 bitcoin, worth about $304.5 million at today's prices.

3AC had exposure to the collapsed algorithmic stablecoin terraUSD and sister token luna.

The Financial Times reported earlier this month that U.S.-based crypto lenders BlockFi and Genesis liquidated some of 3AC's positions, citing people familiar with the matter. 3AC had borrowed from BlockFi but was unable to meet the margin call.

A margin call is a situation in which an investor has to commit more funds to avoid losses on a trade made with borrowed cash.

The unwinding of 3AC has sparked contagion fears to parts of the market that could potentially be exposed to the company.

Other cryptocurrency companies have also faced liquidity issues. Lending firm Celsius and cryptocurrency exchange CoinFlex were forced to pause withdrawals for customers both citing "extreme market conditions."

CoinFlex however had another issue with a customer that failed to repay a $47 million debt, creating a liquidity problem for the company.