Analyst: ‘main market-native risk to crypto is contagion’

While Bitcoin (BTC) remains perched above $20,000 amid the crypto winter, digital asset market analyst Marcus Sotiriou says the main risk for the market is the contagion linked to the crypto hedge fund Three Arrows Capital (3AC) and crypto lender Celsius Network.

For 3AC, today’s notice of default from Voyager Digital all but confirms the demise of the hedge fund, whose problems go back to the collapse of cryptocurrency Terra Luna in May.

Multiple companies exposed to 3AC

Crypto brokerage Voyager’s exposure to 3AC is via a loan of over $675 million – in $350 million of USDC and 15,250 BTC. Three Arrows is unable to repay the loan and hence Voyager’s attempt to explore legal means of getting the funds repaid.

And it’s not just Voyager, the rot affects multiple crypto firms that have had exposure to the crypto hedge fund, whose not-so-good investment practices could see it sink with others. Sotiriou says the contagion could be deeper. This is what the crypto market currently faces.

“As every major lender has been severely impacted by the demise of Three Arrows Capital, including BlockFi, Celsius, Voyager and Genesis, it is clear that the main market-native risk to crypto is contagion,” he said in emailed comments.

Together, these firms could see billions of dollars worth of investments go up in flames.

Notably, though, FTX founder and CEO, billionaire Sam Bankman-Fried is emerging as a ‘lender of last resort’ with his multiple bailout credit facilities. SBF noted last week that the key reason to help some of these firms is to “prevent contagion.” But he notes some may have to be left to die.

VCs: “we’d love to help you backstop crypto firms and provide liquidity because we care deeply about preventing market contagion”

also VCs: “can we please do it for the one great company (after you fix it) and make a lot of money doing it, you can take the others k thx bye”

— SBF (@SBF_FTX) June 23, 2022