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Altcoin price levels contradict woes of Three Arrows

By Monte Stewart


Updated

Image of Cronos label and coin
Cronos and other leading altcoins rose Friday in spite of crypto hedge fund Three Arrows’ financial woes – Photo: Getty Images

Friday's altcoin price levels contradicted crypto hedge fund operator Three Arrows Capital’s financial woes as a terrible week for digital assets concluded.

But even as Three Arrows, also known as 3AC, pointed to potential insolvency, many leading altcoins – cryptocurrencies other than bitcoin (BTC) – rose during afternoon trading in North America.

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CEL to USD

Analyst cites ‘usual volatility’

“I’d chalk that up to usual price volatility,” Weiss ratings cryptocurrency analyst Alex Benfield told Capital.com. “The only two assets to monitor at this point in the market cycle are bitcoin and Ethereum.”

BTC and ether (ETH), the coin backed by the Ethereum blockchain fell were down slightly while altcoin price levels defied the disaster prevalent earlier in the week.

‘Huge drawdown’

Benfield attributed much of the crypto market meltdown to Three Arrows which clarified its situation Friday after speculation about its future swirled earlier. 

The hedge fund, which was founded in 2021, manages an estimated $10bn (£8.18bn) portfolio.

“The Three Arrows Capital situation has been a huge drawdown on the market so far this week, especially considering that the timing coincided with the recent potential insolvency at Celsius,” said Benfield.

At the week’s outset, Celsius sent prices southward after it froze withdrawals and transfers between its 1.7 million clients indefinitely.

“Both of these events paint a very negative picture for the crypto industry as both parties displayed bad risk tolerance and potential mismanagement,” said Benfield. “Additionally, both parties also experienced liquidations which have certainly affected the market prices of some cryptocurrencies.”

Polkadot (DOT) to USD

Luna collapse hurts fund

Three Arrows’ co-founder Kyle Davies told the Wall Street Journal (WSJ) that the fund took an unexpectedly  hard hit after investing $200m in luna, which collapsed in May along with related stablecoin TerraUSD after the latter stablecoin depegged from the US dollar. Luna has since been replaced by LUNA2.

“Three Arrows Capital had a large portfolio of altcoins, all of which could suffer in the wake of the recent news,” “So far we know that they had a large portion of staked ether (stETH), that they had to sell over this past week.”

Photo of Alex BenfieldAlex Benfield, Weiss Ratings analyst (Photo: Courtesy of Alex Benfield

Celsius coin rises

CoinGrape reported that Three Arrows sold 5,500 stETH tokens on Thursday, citing Etherscan data.

“That was likely the main reason that stETH had seemingly lost its peg to ETH,” said Benfield.

He was referring to the fact that ETH had served as a vault, or collateral, for stETH.

BCH/USD

375.15 Price
+6.520% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

XRP/USD

0.48 Price
+6.120% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

DOGE/USD

0.11 Price
+0.260% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

ETH/USD

3,133.89 Price
+0.460% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

Ironically, Friday’s notable altcoin gainers included the Celsius Network coin (CEL), which was up 8.8%, according to Capital.com data. Several coins within the top 10 were also in the green, along with the likes of helium (HEL), along with polkadot (DOT), albeit slightly, ftx token (FTT), litecoin (LTC), and polygon (MATIC), – among others.

Three Arrows co-founder Davies told the WSJ that the company is exploring asset sales and a bailout from another company, among other options.

‘Impressive NFT collection’

“[Three Arrows] still has quite the portfolio of assets, including an impressive NFT collection,” said Benfield, referring to non-fungible tokens. “And while [Three Arrows] could sell their balance at market prices, they are likely to look into selling their assets to one large buyer or potentially selling the business for pennies on the dollar.

“It will be interesting to see how that plays out, as it could obviously impact the market if they choose not to sell [over the counter].”

 

Week spells ‘worst-case scenario’

Benfield also wants to see how the entire crypto market fares after Three Arrows "suffered massive losses and triggered a cascade of liquidations," Celsius dealt with its woes, and the US Federal Reserve increased its benchmark interest rate by 75 basis points – the largest such hike since 1994.

“In my opinion, we've witnessed just about the worst-case scenario with the crypto market this past week or even over the course of the past month,” said Benfield. “Don't forget the Terra implosion was only a month ago.”

However, despite the week’s woes, he pointed out, bitcoin stayed in the $20,000 range.

“Don't get me wrong,” said Benfield. “Bitcoin, Ethereum (trading around $1,000 on Friday) and the entire market are in shaky territory here and need to hold the current [price] support levels.”

“But if this market can slowly climb out of this mess without dropping further. it would be a true showing of the resiliency of this industry.”

In May, Benfield told Capital.com that bitcoin would need to find “stable ground” before altcoins could experience a sustained rally.

So far, he has been proven right – despite Friday’s altcoin price gains.

Markets in this article

BTC/USD
Bitcoin / USD
57910.65 USD
243.15 +0.420%
DOT/USD
Polkadot / USD
6.1396 USD
0.1532 +2.580%
LUNA2/USD
LUNA2.0 to USD
0.3878 USD
-0.0013 -0.350%
LTC/USD
Litecoin / USD
69.98 USD
1.54 +2.270%

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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