By Cassie B.
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The news for cryptocurrencies keeps getting worse as Three Arrows Capital (3AC), a major cryptocurrency hedge fund, plunges into bankruptcy and fires 25% of its workforce.

Rumors that the embattled fund was in trouble started gaining steam early last month, and it was hit hard by the collapse of the Terra crypto and other issues. A court order in the British Virgin Islands ordered their liquidation after they defaulted on a loan worth $660 million to crypto brokerage Voyager Digital.

In the last few days, the company has brought on Teneo Restructuring to help with the liquidation process. Sources reported that they had entered the early stages of liquidation, realizing assets and preparing to set up a website instructing creditors on how they can make claims.

Bloomberg reports that the firm, which is based in Singapore, filed for Chapter 15 bankruptcy on Friday in New York, which will allow them to protect stateside assets while their liquidation takes place in the British Virgin Islands.

3AC is one of the most prominent cryptocurrency hedge funds, focusing on investments in digital assets, and it is known for bullish views on bitcoin and highly leveraged bets. It was founded by Kyle Davies and Zhu Su, who is now trying to sell the $35 million mansion he bought in December.

The collapse of Three Arrows Capital has sent shockwaves throughout the crypto lending market, with countless firms now racking up significant losses as a result of their exposure to the fund.

Voyager was forced to limit withdrawals and saw its stock drop as a result of 3AC’s actions. The cryptocurrency exchange Blockchain.com is another 3AC creditor seeking its liquidation in the British Virgin Islands court and is cooperating with the investigations into the embattled hedge fund.

A Blockchain.com representative told Bloomberg: “We believe Three Arrows Capital defrauded the crypto industry and intend to hold them accountable to the fullest extent of the law. We have filed for the immediate liquidation of all global assets of Three Arrows.”

BlockFi was also affected; in an announcement of a deal with FTX U.S., BlockFi CEO Zac Prince noted that they lost roughly $80 million in dealings with 3AC.

Crypto lending firm Genesis Trading is said to be facing hundreds of millions of dollars in losses due to exposure to 3AC and crypto lender Babel Finance of Hong Kong. Its CEO, Michael Moro, tweeted: “Genesis can confirm that we carefully and thoughtfully mitigated our losses with a large counterparty who failed to meet a margin call to us earlier this week.”

3AC was also given a reprimand by the Monetary Authority of Singapore on the grounds that they provided them with false information and surpassed their allowable threshold for assets under management.

Domino effect

3AC is just the latest casualty in the slump in cryptocurrencies that saw billions of dollars wiped off the market recently. Forced deleveraging has caused Bitcoin’s price to continue to plunge in recent days; it is now trading at around $20,000.

The collapse of the Terra crypto ecosystem in May spurred a domino effect that went through the industry while it was already grappling with inflation and other macroeconomic forces. The resulting forced selling and liquidity impacted whales as well as everyday investors.

Celsius Network, a major crypto lender, had to pause withdrawals in early June and is facing rumors of bankruptcy.

The conditions have led experts to conclude the crypto space is dealing with its first wide-scale credit crisis. IntoTheBlock Head of Research Lucas Outumoro wrote: “Institutions led by their risky practices thrived during the bull market, but were exposed as prices crashed and took down the rest of the crypto space with them. Ultimately, as an industry, crypto ended up learning the same lessons from traditional finance from its first debt crisis.”

Sources include:

TechCrunch.com

CoinDesk.com

Fortune.com