How the collapse of crypto triggered bankruptcies of companies loaning money to...crypto companies

"Hey there, citizen, are you tired of earning less than one percent on your CDs?  Well what if I offered you the chance to loan your money to a fantastic company at an interest rate of, say, 20 percent?"

Most savvy people would smell a rat.  But to the hip cool 30-somethings investing in the latest "cool kidz" tool for making millions, it didn't seem fishy at all.  They poured a few Billion dollars into not just crypto-currencies but also into scores of companies specializing in loaning money to crypto companies--or even farther removed, companies investing in companies loaning money to people wanting to buy crypto.

Frenzied speculation took the billion or two actually invested in crypto to a "market capitalization" of $378 Billion today--which is actually less than one-third of its peak last November.

It was classic herd behavior.  And in the last few months...oops.

Yesterday (July 11, 2022) shill media outlet CNBC took a shot at explaining the last few months, in a story titled "From $10 billion to zero: How a crypto hedge fund collapsed and dragged many investors down with it."  
 
Three Arrows Capital--known as 3AC--was called a "crypto hedge fund," and as recently as March it managed about $10 billion in assets, making it one of the most well-known of such funds.

[Definition: "a limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large profits."]

Now the firm has declared bankruptcy after the plunge in cryptocurrency prices and a particularly risky trading strategy combined to wipe out its assets and leave it unable to repay lenders.

See, when crypto was pushed to all-time highs--prompting even more "cool kidz" to pour more money in--3AC borrowed a LOT of money to invest in even MORE firms investing in crypto.  It was faaabulous!  Early investors were now worth millions!

Unfortunately the speculative frenzy couldn't go on forever, but the company still had to repay money it had borrowed.  When those lenders began making "margin calls" on 3AC, the company couldn't cover those calls, forcing it to sell crypto at much-reduced prices.

As CNBC soothingly put it, "Investors with concentrated bets on firms like 3AC are suffering the consequences."

So how much did 3AC borrow?  Well another crypto firm, Blockchain-- which calls itself a "crypto *exchange*"--had reportedly loaned 3AC $270 million.

Wait...did you say $270 Million?  Yep.

A second "digital asset brokerage" called Voyager Digital had loaned 3AC more than twice as much as Blockchain--reportedly $670 million.  When 3AC couldn't repay, Voyager also filed for bankruptcy.

Other "crypto lenders" Genesis and BlockFi, "crypto derivatives platform" BitMEX and "crypto exchange" FTX had also loaned money to 3AC, and those loans are not expected to be repaid.

Three Arrows had been around for a decade, giving founders Zhu Su and Kyle Davies a measure of credibility in the field (which CNBC amusingly calls "an industry").  Zhu even co-hosted a popular podcast about crypto.  The company's business model was borrowing money and then turning around and investing that capital in various crypto projects, including startups.  

Court filings by 3AC's lenders claim founders Zhu and Davies haven't cooperated with them "in any meaningful manner." Zhu and Davies didn't immediately respond to requests for comment.

The fall of 3AC can be traced to the collapse in May of a cryptocurrency called "terraUSD (UST)," which had been one of the most popular U.S. dollar-pegged stablecoin projects.  And the next 'graf offers the clearest look at how the scheme worked:

"The stability of UST relied on a complex set of code, with very little hard cash to back up the arrangement, despite the promise that it would keep its value regardless of the volatility in the broader crypto market. Investors were incentivized — on an accompanying lending platform called Anchor — with 20% annual yield on their UST holdings--a rate many analysts said was unsustainable."

"A complex set of code," ya say?  And "many analysts" saying offering a 20% interest rate on loans was unsustainable?  Wow, going way out on a limb there, eh?

CNBC claims the collapse of UST and its sister cryptocurrency Luna wiped out $60 billion of investors' holdings.

3AC told the Wall Street Journal it had invested $200 million in Luna, but other industry reports said 3AC's exposure was actually around $560 million. Either way, that investment was wiped out when the stablecoin project failed.

The collapse of UST accelerated the slide in cryptocurrencies.  (Duh.)

Voyager Digital recently emailed investors saying it would be "awhile" before they could withdraw any of the crypto held in their accounts.

Now, let's do some forecasting:  How many of you think the only companies to be wiped out will be the ones already identified as bankrupt?

With crypto having lost one TRILLION in "smoke value" (paper value) since March, and now triggering what seems likely to be a wave of bankruptcies by firms that loaned money to crypto investors and startups, what do you think the total loss in "smoke value" will be?

Finally, what do you think the chances are that big investors with ties to the biden regime will push the regime to cover just their losses, following some just-invented legal theory related to fraud?

(For those who sneeringly dismiss that possibility, consider that the regime repaid $6 Billion in student loans for people who borrowed money to attend goofy "schools" teaching cosmetics or basket-weaving, with no hope of getting a job that would enable the student to repay those loans.  Some of those so-called "schools" encouraged students to enroll and take out loans, knowing the Deep State saboteurs would cover the loans when the students defaulted.)

Source: CNBC

https://www.cnbc.com/2022/07/11/how-the-fall-of-three-arrows-or-3ac-dragged-down-crypto-investors.html