The consequences of the bankruptcy of Three Arrows Capital (3AC) and Celsius are not yet over. Other platforms are struggling with bankruptcy. Two large stock exchanges, on the other hand, are positioning themselves as winners of the crisis.
According to analysts, June had the worst month in Bitcoin’s history. In no bear market has the price fallen as far as in this one. Whether this is 100 percent true in every metric is hard to say.
But the fact is, this crisis is different. Because the crypto ecosystem is different. The market has never been as entangled and intertwined as it is today. That can be good if things are going smoothly – but it can also lead to painful contagion effects. When one stone falls, many fall.
That’s what we’re seeing at Three Arrows Capital (3AC). This was a Singapore hedge fund that speculated heavily on borrowed money. His bankruptcy was one of the key reasons Celsius and Babel Finance went bankrupt or are about to go bankrupt. We have already reported about this. Now there are increasing reports of other victims of this contagion effect :
• Genesis Trading , a market maker and lender, appears to have posted nine-figure losses. These were partly caused by loans to 3AC and deposits in Babel.Finance. However, as a member of the Digital Currency Group (DCG) family, Genesis Trading can hope to be rescued by DCG.
• Voyager Digital, a publicly traded broker, lost more than 15,000 bitcoins and hundreds of millions of USDC to non-payments from 3AC, totaling nearly three-quarters of a billion dollars in losses.
• Singapore-based lending platform Vault has shut down withdrawals, deposits and trading. We are working on restructuring. The contagion effect is multidimensional: “This is happening because of a combination of circumstances,” explains Vault , “such as the volatile market, financial difficulties of relevant business partners, which inevitably affect us as well, and the current mood in the market, which leads to a significant number of our customers have withdrawn $197.7 million worth of deposits since June 12…”
• The BlockFi lending platform has also been severely affected by the 3AC insolvency. The platform had to liquidate assets from 3AC in mid-June after the fund failed to service a loan. After that, BlockFi got into trouble itself. The platform laid off a good 20 percent of its employees.
The crisis is thus being driven by several factors that add up to more than the sum of their parts. Last but not least, the market has lost a significant amount of trust, which is bringing some business models based on trust and optimism to their knees.
The winners of the crisis
However, as the saying goes, every crisis also has its winners. In the current crisis, this is probably Sam Bankman-Fried, the head of Alameda Research and the FTX stock exchange. He buys when everyone is selling, and he uses his company’s treasury to snap up other platforms at bargain prices.
First, FTX rescued the BlockFi platform. A $250 million investment provided BlockFi with much-needed liquidity. After that, FTX apparently added $25 million to buy BlockFi outright. This is a huge discount from a former valuation of just under $5 billion.
Previously, FTX also looked at Celsius. Apparently there was already a somewhat concrete contract as to how FTX would keep the insolvent platform alive. However, after it became apparent that Celsius had a $2 billion hole in its balance sheet, FTX hesitated to buy it. This should seal Celsius’ demise, even if competitor Nexo and megabank Goldman Sachs show interest in Celsius assets.
Voyager Digital also received help from Bankman-Fried, though through his company, Alameda Research. This put out $ 500 million to keep the broker liquid, and probably received shares in return.
All of this is just the news that is washing to the surface. Under her there are likely to be dozens of companies currently fighting bankruptcy. The Binance exchange , for example, explains without naming names that it is in talks with more than 50 companies about a rescue. People only talk about payment problems when it’s too late.
Surely many companies will manage to avoid bankruptcy or get help from the giants of the market. But many will probably not succeed. Whether other crypto companies – and how many and which ones – will follow Celsius and 3AC into the abyss is something we will see in the coming months. This could become the sharpest indicator of what phase of the market we are actually in.