How Encryption Geniuses Evaporated Trillions of Dollars

The giant yacht "Much Wow" was supposed to be a signature toy for cryptocurrency moguls. This 171-foot luxury yacht, worth $50 million, was scheduled for delivery in July this year. However, its buyer, Three Arrows Capital(3AC), filed for bankruptcy and disappeared before the yacht was launched, leaving it abandoned on the Italian coast.

3AC was founded by Su Zhu and Kyle Davies, two graduates of Andover University, and was once one of the most respected hedge funds in the encryption industry. However, in June of this year, 3AC suddenly collapsed, triggering a series of chain reactions that led to a massive sell-off of Bitcoin, resulting in the loss of two years of achievements in the encryption industry.

The collapse of 3AC caused huge losses for many encryption companies. Voyager Digital subsequently filed for bankruptcy protection. Genesis Global Trading and Blockchain.com suffered losses of $2.3 billion and $270 million, respectively. Industry insiders widely believe that 3AC bears significant responsibility for the 2022 cryptocurrency crash, resulting in over $1 trillion in market value evaporating.

Su Zhu and Davies initially focused on forex arbitrage trading before turning to encryption. They gained a large following by actively voicing their opinions on Twitter, promoting the "super cycle" theory of Bitcoin. 3AC rapidly expanded, investing heavily through borrowing in various encryption projects.

However, 3AC's huge bet on GBTC began to encounter problems. At the beginning of 2022, the fund seemed to decide to increase investment risks in hopes of a turnaround. In February, 3AC invested $200 million into the Luna project, which became a fatal blow. In May, Luna collapsed, and 3AC suffered heavy losses.

In the following weeks, 3AC borrowed from various parties to repay debts, but soon could not continue. In mid-June, Su Zhu and Davies stopped responding to creditors and transferred funds. On July 1, 3AC filed for bankruptcy.

Currently, the liquidators have only recovered $40 million in assets, far below the $2.8 billion in creditor claims. Su Zhu and Davies are missing and may have fled to Dubai. Regulators are investigating whether 3AC has engaged in fraudulent activities.

This collapse exposed the systemic risks of the encryption industry and also taught a lesson to those investors who viewed 3AC as "geniuses." As Davies said: "We did well when the market was good. It's just that we lost the most during the bad phases."