Crypto Hedge Fund Moves NFTs Worth Millions To Single Wallet, Sparking Speculation Of Bankruptcy-Induced Fire Sale

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The biggest question in the crypto industry these days seems to be where in the world are Su Zhu and Kyle Davies? The duo, founders of Singapore-based cryptocurrency hedge fund Three Arrows Capital (3AC), which was forced into liquidation proceedings on June 27, reportedly avoided legal proceedings and their current whereabouts remain unknown.

Creditors are now asking a New York bankruptcy court to freeze 3AC’s estimated $3 billion in assets, which are largely in the form of cash, cryptocurrency and NFTs, citing concerns that they may be “transferred or otherwise assigned”.Fueling these concerns and sparking speculation that a high-priced NFT fire sale may be underway, Starry Night Capital, the NFT arm of 3AC, has moved a large portion of its multimillion-dollar collection to a single wallet last month.

According to open source data, the NFTs of the Starry Night Capital account have been transferred to a wallet listed as AEB785. Several of the transfers began on June 14, two days before the FinancialTimes first reported that Three Arrows failed to honor a margin call on a $670 million loan.

This new portfolio now contains several highly regarded NFTS, possibly worth millions, including works by artists such as Erick Calderon of Art Blocks and Mad Dog Jones, among others. A piece by Dimitri Cherniak, entitled A slight lack of symmetry can cause so much painwas purchased last October for 800 ETH, which was over $2 million at the time.

The crypto fund’s venture into NFTs came to the top of the market in August 2021, when the company partnered with pseudonymous NFT collector, Vincent Van Doughwho has so far not commented on the scandal, although he has remained relatively active on Twitter, to launch Starry Night Capital. The group originally aimed to raise $100 million which he said would be used to create an educational platform for NFTs, alongside a physical gallery in a major city, none of which materialized.

Over the past year, Starry Night Capital has spent $21 million acquiring 457 virtual assets. But based on recent estimates prepared by DappRadar using on-chain data, the holdings transferred to the AEB785 wallet now have an estimated net worth of just $3.89 million.

According to CoinMetrics researcher Kyle Waters, Starry Night Capital’s collection at one point accounted for 10% of total volume on SuperRare, the sixth-largest NFT platform by market capitalization.

“The new wallet appears to be related to other 3AC wallets,” Waters wrote on Twitter, adding that “so far it’s unclear what’s going on (worst case scenario, preparing for some sort of clearance/OTC [Over the Counter] block NFT trading? »

In a worrying move, the only institutional backer of Starry Night’s holdings, UK-based fund KR1, canceled their investment entirely. KR1 has purchased $5 million worth of “Starry Night Class Shares” in British Virgin Islands-registered Three Arrows Fund Ltd, although it is unclear whether such a company actually exists. CoinDesk reported. These shares were written down 100% according to a recent income statement published by KR1.

If Starr Night’s NFT collection were to sell today, as crypto art prices have plummeted, the vast majority of the works would fetch considerably less than what they were acquired for.

Total value of sales involving a non-fungible token (NFT) in the art segment globally in the last 30 days from April 15, 2021 to June 15, 2022. According to data from Statista.

In addition to freezing the fund’s assets, creditors are asking the court to compel the founders to list the fund’s assets, including wallets it controls, bank accounts, cash and digital assets, and all derivative contracts, securities, accounts receivable and corporate records. Lawyers acting on behalf of creditors said Zhu and Davies “have not yet begun to cooperate” with the liquidation proceedings, according to Desk corner.

Founded in 2012, 3AC’s downfall seems to come from Ponzi activity this included borrowing from various lending platforms to pay off interest on previous loans. The fund’s fall has caused ripple effects across the crypto-sphere, with liquidity issues hitting other companies, including lending firm Celsius, cryptocurrency exchange CoinFlex, and digital asset brokerage Voyager Digital, all of which had relationships with 3AC.

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