Newly unsealed court documents reveal that FTX secretly liquidated $1.53 billion worth of Three Arrows Capital (3AC) assets two weeks before the hedge fund's collapse in 2022. This disclosure challenges previous claims that 3AC's downfall was purely market-driven.
FTX’s Asset Liquidation
According to recent findings, FTX liquidated $1.53 billion of 3AC's assets shortly before the hedge fund's downfall, which previously managed over $10 billion. This move questions the previous conclusions about the causes of 3AC’s collapse. While 3AC borrowed from more than 20 major institutions, FTX liquidated a substantial part of its holdings prior to the fund's demise.
3AC's Collapse Circumstances
In May 2022, following the crypto market crash when Bitcoin dropped to $16,000, 3AC found itself in a difficult spot. After a series of failed leveraged trades, 3AC believed that its collapse was solely market-driven. However, FTX's significant reduction of 3AC's positions shortly before its bankruptcy increased its claim against FTX from $120 million to $1.53 billion.
Industry Implications
The revelation of FTX’s liquidation has created a stir in the industry, sparking speculation among analysts. Some believe that it may not have saved 3AC even with access to an extra $1.5 billion. Binance founder Changpeng Zhao called it an 'interesting turn of events'.
The secret liquidation of 3AC's assets by FTX adds a new chapter to the hedge fund's collapse story. While the disclosed details do not provide a definitive answer on whether the fund could have been saved, they challenge the perceptions of the nature of its collapse and draw interest to the actions of FTX at the time.
