First Mover Asia: Three Arrows Capital Court Order Reveals Interesting Details; Bitcoin Soars Past $21.5K

Good morning. Here’s what’s happening:

Prices: Bitcoin clears $21.5K on a good day for cryptos.

Insights: Three Arrows Capital court order reveals interesting details; CEO Su Zhu and his wife are creditors.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Bitcoin (BTC): $21,655 +6.3%

Ether (ETH): $1,238 +6.9%

Bitcoin Soars Above $21.5K; Other Cryptos Rise

Investors seem to have really liked the Federal Open Market Committee minutes from last month. The minutes, released late Wednesday, allayed at least some fears of the U.S. central bank's commitment to tightening its monetary policy.

Stocks rose for the fourth consecutive day and so did cryptocurrencies that have correlated increasingly over the past year to major equity indexes.

Bitcoin was recently trading at about $21,600, up more than 6% over the past 24 hours and outpacing all major altcoins at one point. Since dipping below $18,500 last Thursday, the largest cryptocurrency, has risen over 16%, amid what many analysts see as just a temporary lull in investor anxiety.

"I don't see it [crypto] recovering instantaneously," said Takaaki Koto, the global head of sales and trading at Japanese crypto exchange BitFlyer, on CoinDesk TV's "First Mover" show.

Ether, the second-largest crypto by market cap after bitcoin, has risen similarly over the same period and was changing hands above $1,200. Other major cryptocurrencies were firmly in the green, with SOL and CRO rising nearly 5% and 6%, respectively at one point. The increases dovetailed with stocks' gains as the tech-focused Nasdaq jumped over 2% and the S&P 500 and Dow Jones Industrial Average each increased over a percentage point.

Fed determination

The upturn has come amid a now unrelenting Federal Reserve in its quest to tame inflation. Fed Chair Jerome Powell has suggested that more interest rate hikes consistent with the aggressive 50 and 75 basis points increases from the spring could be in the offing. “Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the FOMC minutes said.

If also follows a few mildly encouraging indicators showing the economy growing less robustly than it was earlier in the year. Among the latest data, the U.S. Labor Department reported that jobless claims inched up last week, although they remain at a level consistent with a strong job market. The non-manufacturing purchasing managers index edged down.

"Clearly, the Street remains on recession watch," wrote Oanda Senior Market Analyst Jeffrey Halley in an email.

Crypto good and bad news

Meanwhile, the crypto industry wrestled with a mixture of good and bad news. Ether's price seemed to benefit from optimism about the coming Ethereum Merge that will see the protocol move from a proof-of-work to proof-of-stake protocol. The stewards of the TON Foundation created a new $90 million ecosystem fund, continuing recent attempts to get the Telegram-founded blockchain project back into gear.

But bitcoin miner Compass announced Wednesday that it had laid off 15% of its employees, and cut executive compensation to ride out the crypto downturn. Compass becomes the latest in a string of firms operating within the wider crypto industry to cut their workforces.

BitFlyer's Koto sees the current rocky an environment as a possible opportunity for the industry. "Many issues are being addressed, whether it's having to cut costs or just increasing risk awareness, risk management, or just trying to improve trust in the system, whether through regulation or stability.

He added: "These things do take time. But crypto things happen (at) fast forward speed. It might happen sooner."

S&P 500: 3,902 +1.5%

DJIA: 31,384 +1.1%

Nasdaq: 11,621 +2.2%

Gold: $1,740 -1.3%

Three Arrows Capital Court Order Reveals Interesting Details

A total of 2,319 bitcoin and 31,177 ether, or US$80 million, is the debt from Deribit trading accounts that triggered the liquidation of Three Arrow Capital, the once mighty crypto hedge fund that had nearly $10 billion under management, according to a court document filed in the British Virgin Islands (BVI).

In March 2020, at crypto’s lowest point, Deribit says Three Arrows took out a loan denominated in bitcoin and ether. On June 11 of this year, Three Arrows breached the margin requirements and two days later Deribit began to liquidate Three Arrows’s account per its instructions. Normally this wouldn’t happen as the account was a non-liquidating account (unlike what most retail plebs have at FTX) but these were exceptional times. By June 15 the account was closed and Deribit requested payment for the shortfall that amounted to $80 million.

Most of that has been reported already. But there’s a lot more that’s interesting inside the order that’s not headline material.

Safeguarding assets

For instance, the presiding Judge, ordered the overseeing liquidators to “safeguard the value of the company’s assets from market volatility.” That means converting any crypto it sees fit into dollars, or a stablecoin like tether (USDT).

So much for the underlying belief that bitcoin is an excellent store in value.

The court document also lists Su Zhu and Kelly Kaili Chen, the wife of co-founder Kyle Davies, as company creditors – meaning they are on track to be paid before others. Such an arrangement would infer the two loaned money to Three Arrows, perhaps during its earlier years. This is a common arrangement for startups but curious for one that’s been around for just under a decade and hyper-profitable until recently.

Certainly, the idea of Su Zhu being paid as a creditor during the liquidation process of Three Arrows won’t be a popular one considering the cascading institutional losses caused by the fund’s failure, alongside the massive drop in the price of bitcoin and other digital assets. But he is a creditor. For how much and why exactly will be explored at a later date as this proceeding moves through the courts.

Singapore operation

The next question is how will this affect Three Arrows’s Singapore operation. As of the close of business on July 7 in Asia, there’s no record of a winding-up order for Three Arrows with Singapore’s Insolvency Office. It could be that the firm is waiting for the process to conclude in the BVI before moving on.

But what will happen to the company’s other assets, like TPS Capital, which is kept at arm’s length? That’s going to be something for the courts to decide, and there could be a particularly bloody battle should some creditors feel they aren’t getting a fair amount while an arm’s length subsidiary of the company is still generating yield.

1 p.m. HKT/SGT(5 a.m. UTC): Japan economic survey (current/outlook)

7:55 p.m. HKT/SGT (11:55 a.m. UTC): European Central Bank President Christine Lagarde speech

8:30 p.m. HKT/SGT(12:30 p.m. UTC): U.S. labor force participation rate (June)

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Boris Johnson’s Resignation: Setback for Crypto? Crypto Adoption in Japan and Argentina

"First Mover" explored the macro and crypto industry impacts on international adoption, and how major exchanges in Japan and Latin America are doing. Guests included Takaaki Kato from the Japan-based bitFlyer exchange and Sebastian Serrano from Ripio in Argentina. Plus, Kareem Sadek of KPMG Canada provided a risk management perspective on the state of the crypto industry as the company makes its foray into the metaverse.

Celsius Network Pays Off Maker Loan, Freeing Up $440M of Collateral: The troubled crypto lender paid down the remaining $41 million of its debt on the DeFi platform.

Solana Labs, Multicoin Accused of Violating Securities Law by SOL Investor: Solana’s SOL token is an unregistered security whose insiders have benefitted while retail suffered, the suit alleged.

Boris Johnson to Quit as Pressure From Ministerial Resignations Mounts: The departure of the U.K. prime minister is likely to delay the country's plans to create a friendly environment for crypto.

Animoca Brands Leads $32M Funding Round for Planetarium Labs: The capital will help the Web3 gaming company develop its community-driven network.

Shiba Inu Plans to Launch Stablecoin, Reward Token, Collectible Card Game: SHIB prices hardly budged on the news but gas token BONE and ecosystem token LEASH rallied.

Nic Carter vs. The Bitcoin Maximalists: If maximalism has become nothing but a refusal to think through bitcoin’s actual usefulness, it has become an intellectual dead end. No surprise, then, that the intellectuals are jumping ship.

Other voices: Two crypto crash Indicators (NPR)

"The numbers are stark. Investments in U.S. tech start-ups plunged 23[%] over the last three months, to $62.3 billion, the steepest fall since 2019, according to figures." (The New York Times) ... "Crypto transfers are here. You can now send and receive all listed crypto assets on Robinhood..." (Robinhood/Twitter) ... "Today, we have made the difficult decision to reduce the size of the Compass team by 15% and to implement significant compensation and spend reductions across the rest of the business. While painful, these changes will enable Compass to stay agile and well-positioned in this evolving market, which has challenged many of our industry peers." (Compass Mining letter)

UPDATE (July 8, 2022 14:25 UTC): Corrects the spelling of Deribit's name.