key takeaways
- Genesis Trading CEO Michael Morrow has confirmed that the firm liquidated “a large counterparty” this week.
- Although he did not name the counterparty, he was likely referring to troubled crypto hedge fund Three Arrows Capital.
- It emerged this week that Three Arrows is facing major liquidity issues due to the fall in the crypto market.
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The update comes at a time when renowned crypto hedge fund Three Arrows Capital is facing its biggest liquidity crunch ever.
Genesis Trading says it destroyed counterparty
Genesis Trading confirmed that it liquidated “a large counterparty” this week, which was certainly a reference to the ongoing crisis surrounding crypto-focused hedge fund Three Arrows Capital.
1/ While our policy is to never address specific client activity, we feel it is prudent to provide clarity and transparency to the market in times of great volatility and speculation. We want our counterparties and customers to know the following:
— Michael Morrow (@michaelmoro) June 17, 2022
Posted by Michael Morrow, CEO of Institutional Trading Firm a tweet storm Friday, adding that Genesis prioritizes risk management and aims to provide transparency during hot market conditions. “Origin can confirm that we have carefully and thoughtfully mitigated our losses with a large counterparty that failed to meet the margin call we received earlier this week,” he wrote. “No client funds are affected. We sold and/or hedged all liquid collateral to cover any downside.
Moro said the firm will always “proactively endeavor to recover any potential residual loss through all means available” and will continue to meet all customer requests. “Genesis will be around for a long time and we are committed to taking this industry forward,” he assured.
Although Morrow did not explicitly mention the counterparty affected by the margin call, he was referring to Three Arrows, the troubled trading firm co-run by Su Zhu and Kyle Davis. Rumors that Three Arrows was facing a liquidity crisis surfaced on Crypto Twitter earlier this week and Zhu has said that the firm is “fully committed to making it work” without giving details of the scale of the loss. According to multiple news reports, BlockFi and other firms have confirmed that they liquidated some of the firm’s collateral because they failed to meet margin calls.
wall street journal Zhu and Davis were interviewed for a report published today in which the pair confirmed they had hired legal and financial experts to navigate the crisis. Davis said the firm was considering an asset sale or bailout from another big player in the space.
The Three Arrows saga comes in the midst of a dark period in the crypto market. Key events in the ongoing bear cycle include the May collapse of Terra, which affected Three Arrows as it invested $200 million in LUNA. Celsius also halted client withdrawals this week as bitcoin and other assets fell (the firm uses clients’ funds as collateral, meaning it could face liquidity issues if prices drop). . Bitcoin broke below $21,000 this week, bringing the global crypto market cap below $1 trillion for the first time since January 2021. It is now $930 million, down only 70% from the November 2021 peak.
Disclosure: At the time of writing, the author of this article owns ETH and several other cryptocurrencies.