<p>Throughout history, bear markets have been cruel to investors. Short-term holders look for ways out, long-term holders shoulder unrealized losses. The bear market we are experiencing is not an exception. According to on-chain data from Glassnode, for the first time in history, the 2021-2022 cycle has recorded a lower Mayer Multiple (MM) value (0.487) than the previous cycle's low (0.511). Only 84 days out of over 11 trading years (2%) have recorded a closing MM value below 0.5. This indicates the genesis of a historical bear market sentiment.</p><p>We all know that shrimps (small investors) are often flushed in bear markets. But do whales all survive? The answer is NO- at least not in the case of the <strong>Three Arrows Capital</strong>.</p><h2>Who is Three Arrows Capital?</h2><p><strong>Three Arrows Capital</strong> (also known as <strong>3AC</strong>) was a hedge fund based in Singapore focusing on the cryptocurrency sector. They were founded back in 2012 by Kyle Davies and Su Zhu. Not only were they famous for being the leader of many crypto projects’ investment rounds, but they were also well-known for their “diamond hand” style, which led them to harvest tons of profit from their investments. In their glory days, 3AC’s total assets were estimated to be $18 billion.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed07de51f07484a8e6023f659fee92.jpg" alt="three arrows capital office" title="Three Arrows Capital" width="600" height="279"></p><p>While <strong>3AC</strong> was really an empire, their “general” - <strong>Su Zhu</strong> - was a master in mind games with over 560.000 followers on his Twitter account. For example, he once tweeted that he had abandoned Ethereum but then bought it again at a much lower price.</p><iframe width="550" height="400" src="data:text/html;charset=utf-8,%3Cblockquote%20class%3D%22twitter-tweet%22%3E%3Cp%20lang%3D%22en%22%20dir%3D%22ltr%22%3EYes%20I%20have%20abandoned%20Ethereum%20despite%20supporting%20it%20in%20the%20past.%3Cbr%3E%3Cbr%3EYes%20Ethereum%20has%20abandoned%20its%20users%20despite%20supporting%20them%20in%20the%20past.%3Cbr%3E%3Cbr%3EThe%20idea%20of%20sitting%20around%20jerking%20off%20watching%20the%20burn%20and%20concocting%20purity%20tests%2C%20while%20zero%20newcomers%20can%20afford%20the%20chain%2C%20is%20gross.%3C/p%3E%26mdash%3B%20Zhu%20Su%20%uD83D%uDD3A%20%28@zhusu%29%20%3Ca%20href%3D%22https%3A//twitter.com/zhusu/status/1462216210116853762%3Fref_src%3Dtwsrc%255Etfw%22%3ENovember%2021%2C%202021%3C/a%3E%3C/blockquote%3E%0A%3Cscript%20async%20src%3D%22https%3A//platform.twitter.com/widgets.js%22%20charset%3D%22utf-8%22%3E%3C/script%3E%0A"></iframe><p></p><p>Therefore, whenever he says something about the industry, people don’t know if he is actually telling his real thoughts or just simply creating some fud to capture profits. Many people also consider him a Shiller for <strong>3AC</strong>.</p><h2>The full story on how 3AC went bankrupt</h2><p>Although there are many reports as well as speculations on the insolvency of 3AC, everyone seems to agree that LUNA, stETH, GBTC, and leverage trading are the main reasons behind this massive collapse.</p><h3>Terra crashed</h3><p>3AC was a big investor in Terra Luna. FatMan, a member of the Terra Research forum, tweeted that 3AC bought 10.9 million locked LUNA for $559.6 million. With the LUNA crash in May, the amount of locked LUNA is now only worth roughly $670. That means they lost more than half a billion USD in this deal.</p><p>Recently, Kyle Davies, 3AC’s co-founder, said that the firm had invested $200 million in LUNA tokens as a part of the $1 billion deal raised by TFG (Terra Foundation Guard) in February. Consequently, it can’t be denied that 3AC was heavily damaged by the LUNA crash.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed0743eb6619c0a8e6023f659fee92.jpg" alt="Terra crash influence on Three arrows capital" title="Terra crash influence on Three arrows capital" width="600" height="470"></p><p class="prosemirror-p-center"><em>Source: Watcher guru</em></p><h3>stETH lost its peg</h3><p>3AC was reported to have deposited $600 million worth of ETH in Lido to get yield and stETH in return. They then deposited the stETH again in AAVE to borrow ETH and repeated the process to maximize the profit. Unfortunately, the market did not let them win that easily. The depeg of stETH made the 3AC panic and dump $88,000 stETH. This reaction worsened the depeg of stETH and probably liquidated the positions of 3AC in AAVE.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed0743eb661cfaa8e6023f659fee92.jpg" alt="three arrows capital with stETH depeg" title="three arrows capital with stETH depeg" width="600" height="284"></p><p><em><strong>&gt;&gt;&gt; Find out more about </strong></em><a href="https://www.builder.news/project-review/lido-dao-review-what-makes-lido-the-best-ethereum-staking-platform-RQriU" alt="Lido DAO" title="Lido DAO review: What makes Lido the best Ethereum staking platform?" target="_blank" rel="" class=""><em><strong>Lido DAO</strong></em></a><em><strong>.</strong></em></p><h3>Grayscale Bitcoin Trust (GBTC)</h3><p>3AC was one of the funds that hold a huge amount of GBTC. However, with the recent introductions of the new ETFs over the past two years, GBTC has been down dramatically in price. Grayscale has made some efforts to covert its $13.5B GBTC into a spot-based bitcoin exchange-traded fund (ETF) but that proposal was denied by the Securities and Exchange Commission (SEC).</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed0743eb66214ba8e6023f659fee92.jpg" alt="Three Arrows Capital with Grayscale" title="Three Arrows Capital with Grayscale" width="600" height="289"></p><p>The price of GBTC then plummeted and 3AC did not let their chance go. They continued to buy more GBTC in the hope that when the proposal is accepted, the GBTC’s price will go up only. But not long after that, 3AC was reported to dump all their GBTC. There is speculation that they sold them OTC or their positions were liquidated but we don’t know exactly what they did.</p><h3>Leverage Trading-The double-edged sword</h3><p>There is a famous saying by Charlie Munger: "There are three ways a smart person can go broke: liquor, ladies, and leverage". 3AC went to insolvency by the third.</p><p>After losing so much in LUNA and stETH, there is speculation that 3AC decided to go for “revenge trading” which means they used more leverage to earn back what they lost. 3AC was a big borrower of every single major lender: BlockFi, Genesis, Nexo, Celsius, Voyager Digital. Although the net asset value they last claimed was $18b, people think the number at the time when the market crashed was much smaller (around $1-2 billion readily to be used to pay the debt). This is because their investments were mainly locked tokens and illiquid for years. If they get margin calls, those tokens would not be available to pay the loans.</p><p>Obviously, from all of the above, 3AC would not be able to repay all the loans when the market does not go the way they want and margin calls come.</p><h3>The last efforts</h3><ul><li><p>On June 15th, when the fuds were spreading around, Su Zhu tweeted some words to calm the investors and lenders but this only confirmed they were in trouble.</p><iframe width="550" height="400" src="data:text/html;charset=utf-8,%3Cblockquote%20class%3D%22twitter-tweet%22%3E%3Cp%20lang%3D%22en%22%20dir%3D%22ltr%22%3EWe%20are%20in%20the%20process%20of%20communicating%20with%20relevant%20parties%20and%20fully%20committed%20to%20working%20this%20out%3C/p%3E%26mdash%3B%20Zhu%20Su%20%uD83D%uDD3A%20%28@zhusu%29%20%3Ca%20href%3D%22https%3A//twitter.com/zhusu/status/1536876343815983104%3Fref_src%3Dtwsrc%255Etfw%22%3EJune%2015%2C%202022%3C/a%3E%3C/blockquote%3E%0A%3Cscript%20async%20src%3D%22https%3A//platform.twitter.com/widgets.js%22%20charset%3D%22utf-8%22%3E%3C/script%3E%0A"></iframe><p lang="en" dir="ltr"></p></li><li><p>On June 16th, 8 Block Capital accused 3AC of stealing $1 million from their trading account to pay the loans.</p><iframe width="550" height="400" src="data:text/html;charset=utf-8,%3Cblockquote%20class%3D%22twitter-tweet%22%3E%3Cp%20lang%3D%22en%22%20dir%3D%22ltr%22%3E8%29%20Fast%20forward%20to%2024%20hours%20ago%2C%20our%20funds%20monitoring%20script%20noticed%20that%20%7E1m%20was%20missing%20from%20our%20accounts%20with%20them.%20We%20reached%20out%20to%20%3Ca%20href%3D%22https%3A//twitter.com/KyleLDavies%3Fref_src%3Dtwsrc%255Etfw%22%3E@KyleLDavies%3C/a%3E%20%2C%20the%20Ops%20team%20on%20Telegram%20about%20the%20missing%20funds-%20no%20replies.%20We%20tried%20calling%20them-%20they%20were%20online%20and%20they%20didn%26%2339%3Bt%20pick%20up.%3C/p%3E%26mdash%3B%20Danny%20%28@Danny8BC%29%20%3Ca%20href%3D%22https%3A//twitter.com/Danny8BC/status/1537224396687155201%3Fref_src%3Dtwsrc%255Etfw%22%3EJune%2016%2C%202022%3C/a%3E%3C/blockquote%3E%0A%3Cscript%20async%20src%3D%22https%3A//platform.twitter.com/widgets.js%22%20charset%3D%22utf-8%22%3E%3C/script%3E%0A"></iframe><p></p></li><li><p>On June 17th, 3AC sold all the small assets they had. They are reported to transfer 138 SUSHI (~$200) to Binance for selling purposes.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed0743eb662476a8e6023f659fee92.jpg" alt="Three Arrows Capital report" title="Three Arrows Capital report" width="570" height="585"></p></li></ul><p class="prosemirror-p-center"><em>Source: Coin98 insights</em></p><h3>The end of an empire</h3><p>After admitting that they cannot pay the loans for the lenders, Three Arrows Capital filed for Chapter 15 bankruptcy in the Southern District of New York on July 1st. This marks the end of one of the most famous VCs in the crypto world.</p><h2><strong>Lessons learned from Three Arrows Capital's collapse</strong></h2><p>Venture capitals are just human although people tend to have a Halo effect when it comes to them. Many are considered too big to fail but they are actually not. Su Zhu too believed in the so-called “supercycle” of Bitcoin and he failed when he attempted to get his money back apparently. He forgot one thing this market requires a cold head. This collapse was huge in scale and it had domino effects on the market but it was all caused by human mistakes.</p><p>Risk management and using leverage properly are the two main lessons that we should learn from 3AC’s collapse.</p><p><em><strong>Read more articles about crypto insights, visit</strong> </em><a href="https://www.builder.news/" alt="Builder news" title="Builder news" target="_blank" rel="" class=""><em>Builder.news</em></a><em>.</em></p><div class="pr-block-special"><strong>Disclaimer:</strong><br>This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

Three Arrows Capital has recently filed for bankruptcy. Let’s find out who Three Arrows Capital is and why it collapsed? This article will give you a full sense of the topic.

Three Arrows Capital - The insolvency of one of the most significant hedge funds