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The crypto winter has finally come for the Singapore-based crypto hedge fund Three Arrows Capital, which has been ordered to liquidate in the British Virgin Islands by a court, according to Sky News.

Created in 2012 by former Deutsche Bank trader Su Zhu and investor Kyle Davies, the firm has taken bullish bets on crypto, but is now facing a liquidity crisis amid a wider crypto selloff. In particular, the recent collapse of the algorithmic stablecoin TerraUSD heavily impacted Three Arrow Capital and its ability to meet its target goals, as billions of dollars were wiped from crypto markets.

Last week, the research firm FSInsight published a report saying that Three Arrows Capital resembled an “old-fashioned Madoff-style Ponzi scheme."

“[They] recklessly borrow from just about every institutional lender in the business,” said Sean Farrell, head of digital asset strategy at FSInsight. The report detailed how crypto firms like Voyager Digital, Babel Finance and BlockFi were financially vulnerable because of their deals with the company.

On Monday, crypto broker Voyager Digital slapped Three Arrows Capital with a default notice on a loan exceeding $665 million. The company had given 15,250 Bitcoin and $350 million in USDC to Three Arrows Capital, which it says it is planning to recover from the insolvent company.

“We are working diligently and expeditiously to strengthen our balance sheet and pursuing options so we can continue to meet customer liquidity demands,” Voyager CEO Stephen Ehrlich told The Washington Post.

The crypto winter has thrown into sharp relief how vulnerable crypto firms are to contagion risks. One company's inability to pay sharply impacts another, given the interconnected nature of crypto borrowing and investments.

The liquidation process is now being overseen by the restructuring firm Teneo, which is currently identifying the value of Three Arrow Capital's assets. The company plans to unveil a website in the coming days to help creditors pursue their claims.

Recently, Zhu conceded on Twitter that his predictions about crypto were wrong. Namely, he had espoused the view that crypto's value would soar in tandem with mainstream adoption; however, last month he said he was “regrettably wrong,” but still believed in crypto's underlying value: “Crypto will still thrive and change the world every day.”

As the crypto winter accelerates, Bitcoin, the world's most valuable cryptocurrency, is currently trading around $19,000, a far cry from its all-time high last November of approximately $69,000. 

The global value of cryptocurrencies has dropped from nearly $3 trillion to just under $1 trillion today.