Revealed: FTX’s Secret $1.5B Liquidation of 3AC Assets Before Shocking Crypto Collapse

The cryptocurrency world is still reeling from the dramatic collapses of 2022, and new details continue to emerge, painting a more complex picture of events. Recently unearthed court documents have revealed a stunning development: FTX, the now-infamous crypto exchange, secretly liquidated a massive $1.53 billion in assets belonging to Three Arrows Capital (3AC) just two weeks before the hedge fund’s spectacular implosion. This revelation throws a wrench into the previously accepted narrative that 3AC’s downfall was purely a consequence of market forces. Let’s dive into this explosive news and explore what it means for the ongoing saga of crypto’s turbulent past.

Secret Liquidation: FTX’s Actions Before 3AC’s Crypto Collapse

Once a titan in the crypto hedge fund space, managing over $10 billion in assets, Three Arrows Capital (3AC) met a catastrophic end in mid-2022. The accepted story was that a series of aggressive, leveraged trades backfired spectacularly, exacerbated by the broader crypto market downturn. Remember the brutal May 2022 crypto crash that sent Bitcoin plummeting to $16,000? 3AC, heavily leveraged and exposed, buckled under the pressure. It was known they had borrowed from over 20 major institutions. But the newly discovered evidence adds a crucial layer to this narrative.

According to court documents, FTX executed a secret liquidation of a staggering $1.53 billion of 3AC’s assets a mere fortnight before 3AC’s own collapse. This information surfaced as 3AC sought to amend its claim against FTX in the ongoing bankruptcy proceedings. “Mbottjer,” a co-founder of FTX Creditor, a group representing FTX creditors and bankruptcy claim buyers, highlighted that 3AC is now seeking to increase its claim against FTX significantly.

“3AC says it only recently discovered evidence that FTX liquidated $1.53B of 3AC’s assets just two weeks before 3AC itself went into liquidation, much more than the $120M originally claimed,” Mbottjer stated, citing sources.

This raises a critical question: Why was this massive liquidation not disclosed earlier, and what implications does it have for both FTX and 3AC’s creditors?

3AC’s Pursuit of Asset Recovery: A Billion-Dollar Claim

3AC claims it was kept in the dark about these substantial liquidations, purportedly due to the complexities of FTX’s own bankruptcy proceedings. However, a court has acknowledged 3AC’s good faith in this matter, paving the way for them to pursue their full $1.53 billion claim within FTX’s bankruptcy case. This development significantly escalates 3AC’s potential recovery from the FTX debacle.

Adding another layer of complexity, in December 2023, a British Virgin Islands court ordered a freeze on $1.14 billion in assets belonging to 3AC co-founders Kyle Davies and Su Zhu. Teneo, the firm overseeing 3AC’s liquidation, estimates that creditors are still owed approximately $3.3 billion following the hedge fund collapse.

Davies has disputed Teneo’s claims of non-cooperation, suggesting that the situation is more nuanced than portrayed.

Could $1.5B Have Prevented 3AC’s Crypto Collapse?

While $1.53 billion is a substantial sum, especially when compared to the initially reported $120 million in liquidations, analysts question whether it could have truly saved 3AC from its fate. Nicolai Sondergaard, a research analyst at Nansen, offers a sobering perspective:

“From what I can see, even if they in 2022 had the additional $1.5 billion they still would not have been able to meet creditor claims/debt repayments.”

This suggests that 3AC’s financial woes were likely far deeper than initially understood, and the liquidation, while significant, might have been a drop in the ocean of their total liabilities. Sondergaard also raises doubts about the extent of 3AC’s recovery in the FTX bankruptcy:

“Without being a legal expert, it seems to me that 3AC, while being allowed to pursue a much larger amount, likely won’t get the full $1.53 billion claim. It seems realistic that they will get more, but how much is uncertain,” he added.

CZ’s Intriguing Question: FTX and the Terra/LUNA Crypto Collapse?

Changpeng Zhao (CZ), co-founder and former CEO of Binance, weighed in on these revelations, describing them as an “interesting turn of events.” His comment on X sparked further speculation:

“I am curious if FTX had anything to do with the LUNA/UST crash/depeg in May 2022,” Zhao said in a March 14 X post.

This is a significant question. The crypto collapse of 3AC occurred shortly after the catastrophic failure of Terraform Labs’ Terra (LUNC) and TerraClassicUSD (USTC) tokens, and just before crypto lender Celsius froze withdrawals after its native token plummeted. Could there be a connection between FTX’s actions, the Terra/LUNA debacle, and the subsequent domino effect that engulfed major crypto players like 3AC?

The Bigger Picture: Unraveling the Crypto Contagion

The timeline of events is certainly suggestive:

• May 2022: Terra/LUNA crypto collapse.
• Mid-June 2022: FTX liquidates $1.53B of 3AC assets.
• Late June 2022: 3AC collapses.
• Shortly after: Celsius freezes withdrawals.

While correlation doesn’t equal causation, these events highlight the interconnectedness and fragility of the crypto ecosystem. The liquidation of 3AC’s assets by FTX raises serious questions about transparency, risk management, and the potential for hidden actions to exacerbate market instability. As the FTX bankruptcy proceedings continue to unfold, and as 3AC seeks to recover its assets, we can expect more revelations that will further shape our understanding of the 2022 crypto winter and its far-reaching consequences.

This saga serves as a stark reminder of the risks inherent in the cryptocurrency market, the importance of due diligence, and the need for greater transparency and regulatory oversight. The hedge fund collapse of 3AC and the FTX scandal are cautionary tales that will resonate within the crypto industry for years to come.