In the year 2022, Three Arrows Capital (3AC), previously a well-known brand in the bitcoin hedge fund industry, faced a catastrophic failure. This decline wasn’t just a one-time event; rather, it was a trigger in a series of domino events that occurred, shocking the cryptocurrency market. The court in the British Virgin Islands acted quickly action by freezing assets linked to the fund’s founders, Su Zhu and Kyle Davies, and Davies’ wife, Kelly Chen, with a potential value of up to $1.14 billion.
Mismanagement and excessive exposure to the unpredictable cryptocurrency market are the main causes of the collapse at 3AC. Teneo trustees claim that the behavior of the fund’s founders has made the fund extremely sensitive to market fluctuations, wiping out its capital cushion against an astonishing $3.3 billion in liabilities. In the aftermath of Terra’s collapse in 2022, which set off a chain reaction of consequences for the company, this vulnerability became more apparent.
The collapse of 3AC has consequences beyond the financial damage it caused. Founders Zhu and Davies are now under investigation by the legal system, with Zhu being subjected to in-depth questioning in a Singapore court over the fund’s collapse and the locations of its assets. Zhu’s arrest at Singapore’s Changi Airport and subsequent interrogation of him highlight the need for effective global coordination of regulatory activities. In response, Singapore banned Zhu and Davies from engaging in activities regulated within its jurisdiction. This action reflects a growing global consensus on the increasing need to implement strict regulations cryptocurrencies.
There have been extensive impacts on the cryptocurrency industry as a result of the breakup of 3AC. The cryptocurrency market experienced a major drop of $2 trillion due to his contribution, which in turn caused a number of subsequent crashes within the sector. As a result of this event, the fragility and interconnectedness of the cryptocurrency market have been exposed, highlighting the need for stronger regulatory frameworks and risk management practices.
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