First Mover Asia: Three Arrows Capital Court Order Reveals Interesting Details; Bitcoin Soars Past $21.5K

Bitcoin (BTC): $21,655 +6.3%

Ether (ETH): $1,238 +6.9%

Bitcoin Soars Above $21.5K; Other Cryptos Rise

Investors seem to have really liked the Federal Open Market Committee minutes from last month. The minutes, released late Wednesday, allayed at least some fears of the U.S. central bank’s commitment to tightening its monetary policy.

Stocks rose for the fourth consecutive day and so did cryptocurrencies that have correlated increasingly over the past year to major equity indexes.

Bitcoin was recently trading at about $21,600, up more than 6% over the past 24 hours and outpacing all major altcoins at one point. Since dipping below $18,500 last Thursday, the largest cryptocurrency, has risen over 16%, amid what many analysts see as just a temporary lull in investor anxiety.

“I don’t see it [crypto] recovering instantaneously,” said Takaaki Koto, the global head of sales and trading at Japanese crypto exchange BitFlyer, on CoinDesk TV’s First Mover show.

Ether, the second largest crypto by market cap, has risen similarly over the same period and was changing hands above $1,200. Other major cryptocurrencies were firmly in the green, with SOL and CRO rising nearly 5% and 6%, respectively at one point. The increases dovetailed with stocks’ gains as the tech-focused Nasdaq jumped over 2% and the S&P 500 and Dow Jones Industrial Average each increased over a percentage point.

Fed determination

The upturn has come amid a now unrelenting Federal Reserve in its quest to tame inflation. Fed Chair Jerome Powell has suggested that more interest rate hikes consistent with the aggressive 50 and 75 basis points increases from the spring could be in the offing. “Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the FOMC minutes said.

If also follows a few mildly encouraging indicators showing the economy growing less robustly than it was earlier in the year. Among the latest data, the U.S. Labor Department reported that jobless claims inched up last week, although they remain at a level consistent with a strong job market. The non-manufacturing purchasing managers index edged down.

“Clearly, the Street remains on recession watch,” wrote Oanda Senior Market Analyst Jeffrey Halley in an email.

Crypto good and bad news

Meanwhile, the crypto industry wrestled with a mixture of good and bad news. Ether’s price seemed to benefit from optimism about the coming Ethereum Merge that will see the protocol move from a proof-of-work to proof-of-stake protocol. The stewards of the TON Foundation created a new $90 million ecosystem fund, continuing recent attempts to get the Telegram-founded blockchain project back into gear.

But bitcoin miner Compass announced Wednesday that it had laid off 15% of its employees, and cut executive compensation to ride out the crypto downturn. Compass becomes the latest in a string of firms operating within the wider crypto industry to cut their workforces.

BitFlyer’s Koto sees the current rocky an environment as a possible opportunity for the industry. “Many issues are being addressed, whether it’s having to cut costs or just increasing risk awareness, risk management, or just trying to improve trust in the system, whether through regulation or stability.

He added: “These things do take time. But crypto things happen (at) fast forward speed. It might happen sooner.”

S&P 500: 3,902 +1.5%

DJIA: 31,384 +1.1%

Nasdaq: 11,621 +2.2%

Gold: $1,740 -1.3%

Three Arrows Capital Court Order Reveals Interesting Details

A total of 2,319 bitcoin and 31,177 ether, or US$80 million, is the debt from Derebit trading accounts that triggered the liquidation of Three Arrow Capital, the once mighty crypto hedge fund that had nearly $10 billion under management, according to a court document filed in the British Virgin Islands (BVI).

In March 2020, at crypto’s lowest point, Derebit says Three Arrows took out a loan denominated in bitcoin and ether. On June 11 of this year, Three Arrows breached the margin requirements and two days later Derebit began to liquidate Three Arrows’s account per its instructions. Normally this wouldn’t happen as the account was a non-liquidating account (unlike what most retail plebs have at FTX) but these were exceptional times. By June 15 the account was closed and Derebit requested payment for the shortfall that amounted to $80 million.

Most of that has been reported already. But there’s a lot more that’s interesting inside the order that’s not headline material.

Safeguarding assets

For instance, the presiding Judge, ordered the overseeing liquidators to “safeguard the value of the company’s assets from market volatility.” That means converting any crypto it sees fit into dollars, or a stablecoin like tether (USDT).

So much for the underlying belief that bitcoin is an excellent store in value.

The court document also lists Su Zhu and Kelly Kaili Chen, the wife of co-founder Kyle Davies, as company creditors – meaning they are on track to be paid before others. Such an arrangement would infer the two loaned money to Three Arrows, perhaps during its earlier years. This is a common arrangement for startups but curious for one that’s been around for just under a decade and hyper-profitable until recently.

Certainly, the idea of Su Zhu being paid as a creditor during the liquidation process of Three Arrows won’t be a popular one considering the cascading institutional losses caused by the fund’s failure, alongside the massive drop in the price of bitcoin and other digital assets. But he is a creditor. For how much and why exactly will be explored at a later date as this proceeding moves through the courts.

Singapore operation

The next question is how will this affect Three Arrows’s Singapore operation. As of the close of business on July 7 in Asia, there’s no record of a winding-up order for Three Arrows with Singapore’s Insolvency Office. It could be that the firm is waiting for the process to conclude in the BVI before moving on.

But what will happen to the company’s other assets, like TPS Capital, which is kept at arm’s length? That’s going to be something for the courts to decide, and there could be a particularly bloody battle should some creditors feel they aren’t getting a fair amount while an arm’s length subsidiary of the company is still generating yield.