WSJ Crypto’s Domino Effect Is Widening, Threatening More Pain
Losses are blowing holes in balance sheets and pushing firms in the industry to near bankruptcy
Problems facing Three Arrows Capital Ltd., the hedge fund ordered to liquidate after being heavily invested in Luna, spilled over to the crypto brokerage Voyager Digital Ltd. this past week. On Friday, Voyager said it was temporarily suspending trading, deposits, withdrawals and loyalty rewards. It earlier issued a notice of default to Three Arrows for allegedly failing to make a loan repayment of 15,250 bitcoin and $350 million in USD Coin, a stablecoin. The loan is worth about $646 million based on bitcoin’s current price of around $19,400. Shares of Voyager, which are traded on the Toronto Stock Exchange, are down more than 96% this year. On Friday, Three Arrows’ liquidators asked a New York bankruptcy court to recognize the British Virgin Islands case and to allow them to handle any assets in the U.S.
Three Arrows’ financial troubles have affected the smaller firms in its orbit. The Hong Kong-based trading firm 8 Blocks Capital said Three Arrows has cut off communications after allegedly misappropriating $1 million of its capital. Kyber Network, a decentralized-finance project, said the firm has “a small portion of its Treasury” with the hedge fund, which it said hasn’t responded to any of its attempts to communicate.
Three Arrows didn’t respond to a request for comment.
Crypto still exists largely outside of regulation, with few federal laws specific to crypto and the Securities and Exchange Commission taking up cases against individual firms on an ad hoc basis. The growth of the industry—worth more than $3 trillion at its peak last year—has surpassed the ability of regulators to keep up, according to analysts. The blowup of TerraUSD prompted renewed calls for Congress to pass legislation covering crypto.