TeaThe founders of Three Arrows Capital (3AC) told Bloomberg that trading involving Grayscale Bitcoin Trust (GBTC), Terra Luna (LUNA) and UST tokens are responsible for the explosion of crypto funds.
Kyle Davis and Su Zhu, the founders of crypto fund firm 3AC, previously confirmed that they incurred nearly $200 million in losses related to LUNA and UST, the now-implied algorithmic stablecoin. The price of the two tokens began to decline in mid-May and subsequently dropped to almost zero.
“We failed to realize that Luna was able to drop to effective zero in just a few days and that this would catalyze a credit squeeze across the industry that would put significant pressure on all of our liquid positions,” Zhu explained. 3AC also failed to characterize LUNA-related risks.
3AC was one of Terra’s most vocal bulls, being one of the largest investors in the institutional bitcoin product, Grayscale Bitcoin Trust (GBTC). LUNA suffered losses during a week in mid-May, while the algorithmic stablecoin, terraUSD (UST), felt losses after losing its intended peg against the US dollar.
Since GBTC was a regulated product, it allowed buyers like 3AC to pay directly for shares by sending bitcoin to the trust. The shares could then be sold by holders for a premium in over-the-counter markets, resulting in substantial profits for sellers and making the deal attractive to investors.
GBTC shares were closed for six months, holders were making losses instead of gains and were actually at a loss due to the fall in prices. GBTC’s premium turned into a discount over the past year, reaching a record discount in June. That means huge losses for investors like 3AC, who invested billions of dollars in the product.
GBTC lost value during the market downturn. GBTC shares initially traded above $34, up from $12, down more than 50 percent earlier this week.
3AC continued to borrow from lenders in hopes of a return to the market until bitcoin fell to around $20,000 in late June. After losing money on Luna, its GBTC shares traded at a discount, and the company was not able to pay off any debt due to the overall decline in the market.
3AC’s investors are claiming the passive fund is still owed them $2.8 billion, however, court filings released Monday show claims of more than $1 billion.