Three Arrows Capital blew through billions with risky cryptocurrency bets

The now bankrupt Three Arrows Capital (3AC) presented signs of mismanagement before the cryptocurrency hedge fund’s ultimate collapse. A report from New York Magazine reveals that 3AC co-founders Kyle Davies and Su Zhu faced criticism from banks and other traders before the company even entered the crypto market. In its early days, the Singapore-based 3AC got into foreign exchange (FX) trading and reportedly practiced something called currency arbitrage, which allowed Zhu and Davies to cash in on mispriced quotes from different brokers, even if it resulted in gains of just “fractions of a cent on each dollar traded.” According to New York Magazine, banks would sometimes try to contact 3AC in an attempt to call off or adjust the trade, but the firm would refuse. Banks reportedly began cutting off 3AC by 2017. “We FX traders are partly to blame for this because we knew for a fact that these guys were not able to make money in FX,” a former trader told New York Magazine. “But then when they came to crypto, everyone thought they were geniuses.”

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