Cryptocurrencies are digital or virtual currencies that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services. Non-fungible tokens (NFTs) are a type of cryptocurrency that represents a unique asset, such as a piece of art or a collectible. NFTs cannot be exchanged for other assets like traditional cryptocurrencies, but they can be traded on crypto exchanges. Crypto assets can be used to transfer value and ownership of assets between individuals without the need for a central authority. Crypto exchanges are online platforms where cryptocurrencies can be bought, sold, or exchanged for other cryptocurrencies or fiat currencies. Where does 3AC fit in?
Three Arrows, known as 3AC, was a hedge fund that claimed to manage more than $10 billion in assets, but now faces Chapter 15 bankruptcy protection from U.S. creditors in the Southern District of New York amid the larger impact that is evolving from the dropping value for cryptocurrency which has highlighted the many cracks in the system:
“According to Friday’s court filing, Zhu and Davies, both former traders for Credit Suisse, participated in an introductory Zoom call last week to discuss basic steps to preserve their assets. Neither founder turned on his video, and both remained muted for the duration, with all dialogue conducted through counsel. Their lawyers said at the time that they “intended to cooperate.”
During the meeting, representatives helping to facilitate the liquidation requested immediate access to 3AC’s offices and to information related to their bank accounts and digital wallets. As of Friday, that access had not been granted, the filing says.
When the fund’s liquidators previously arrived at 3AC’s Singapore office in late June in an attempt to meet with the founders, “the offices appeared vacant except for a number of inactive computer screens.”
The filing notes that while the office door was locked, the representatives could view unopened mail addressed to Three Arrows, which “appeared to have been pushed under the door or propped against the door.” Neighbors in surrounding offices said they had last seen people in the 3AC office in early June.
Meanwhile, creditors are trying to determine what assets remain.
Teneo’s Russell Crumpler, who was tasked with helping to facilitate the bankruptcy process, said in a sworn statement that there is a “real risk” that 3AC’s assets would disappear “absent immediate authority to pursue discovery.”
“That risk is heightened because a substantial portion of the Debtor’s assets are comprised of cash and digital assets, such as cryptocurrencies and non-fungible tokens, that are readily transferrable,” Crumpler said in his statement.
There are reasons for such concern. One of 3AC’s NFTs was transferred to another crypto wallet, according to a well-known NFT collector and investor.
In Friday’s filing, creditors requested that the court suspend 3AC’s right to transfer or dispose of any assets. Attorneys are also asking that the court subpoena the founders or others who may have information about 3AC’s assets. That could include banks, crypto exchanges and counterparties.
3AC’s insolvency has already had a major impact on the broader crypto market, because so many institutions had money wrapped up with the firm.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group