Contagion Alert: 3AC’s Liquidation Impact on the Crypto Market

It seems the crypto market is dealing with another day of turbulence, thanks to the recent liquidation order on Three Arrows Capital (3AC) by a British court. This little bombshell has sent ripples through the crypto space, leading to other firms feeling the heat. Among these casualties is BlockFi, which has reportedly liquidated a whopping $1 billion loan associated with 3AC. And if that wasn’t enough, lending firm Genesis Trading is left licking its wounds from losses in the “few hundred million dollars” range. Talk about a rough patch!

The Celsius Conundrum: A Cautionary Tale?

Let’s take a peek at Celsius—a platform that once touted itself as a savvy alternative to traditional banks. Spoiler alert: it turns out their financial practices were riskier than a tightrope walker in a windstorm. With a staggering 19 to 1 assets-to-equity ratio last year, Celsius was operating on razor-thin margins. The formula for this ratio indicates how much debt a company is carrying, and it’s safe to say Celsius was riding the crypto roller coaster without a safety harness.

• What is the Assets-to-Equity Ratio? This ratio provides insights into how much of a company’s assets are financed by owners as compared to debt. In Celsius’ case, their ratio screamed alarm bells!
• Expert Opinions: Economist Eric Budish likened Celsius’ business model to the mortgage portfolios in 2006, suggesting that the firm’s heavy reliance on crypto was akin to bad diversification. Yikes!

Voyager’s Cash Infusion to Celsius

In an unexpected twist, it appears Voyager Digital has sent over $174 million to Celsius in recent months! However, the details on whether this was a loan or a rescue mission remain as murky as the bottom of a dirty fish tank.

Genesis Trading: Riding Out the Storm

Meanwhile, Genesis Trading is in the thick of it too. With losses in the hundreds of millions, they find themselves vulnerable due to exposure to both 3AC and Babel Finance. But don’t count them out just yet. CEO Michael Moro assures us that the company is chopping the losses down to size, using their hedging strategies like a seasoned samurai. “We sold collateral, hedged our downside, and moved on,” he said like a true warrior. Let’s not forget that even in the depths of despair, they’re still meeting client needs!

The BlockFi and 3AC Affair: Liquidation Unpacked

Now, let’s talk about BlockFi. Following the investor call leak from hedge fund Morgan Creek Digital, it has been revealed that BlockFi’s $1 billion loan to 3AC is at the heart of the liquidation drama. Liquidating assets is one thing, but trying to unload $1 billion worth of Bitcoin and Grayscale Bitcoin Trust (GBTC) shares is a whole other conundrum. Given the recent volatility in crypto values, you can imagine how that went down.

• Liquidation Strategy: Once 3AC defaulted on repayments, their collateral, which included nearly 67% Bitcoin (BTC) and 33% GBTC shares valued around $400 million, was on the chopping block.
• Stumbling Blocks: BlockFi faced additional woes when the GBTC discount dipped to 34%, making their liquidation efforts even trickier.

The stakes are high as FTX considers snatching up a stake in BlockFi, following a $250 million credit facility to the firm. It’s a classic case of survival of the fittest and raises questions about the firm’s diminished valuation from $5 billion in June 2021 to a potentially shocking $500 million.

The Bigger Picture: Are We Out of the Woods Yet?

As we ride the twists and turns of this wild crypto saga, one thing’s for sure: the world of digital currencies is more volatile than ever. With liquidations, risky ratios, and hedge funds entering the fray, it feels like we are watching a high-stakes poker game where everyone’s holding a bad hand. Stay tuned, folks! The next chapter is bound to be as entertaining as a blockbuster film, just maybe with fewer explosions.