In a piece for The New Yorker entitled “The Crypto Geniuses Who Vaporized a Trillion Dollars,” writer Jen Wieczner takes a closer look at these shady figures and how they managed to get it so wrong. Although the pair attended the same ritzy boarding school, they didn’t end up becoming friends until their time together at Columbia University. They both ended up working in Tokyo at Credit Suisse afterward, and then Zhu moved on to Flow Traders, where he picked up the art of arbitrage and was known for his extreme confidence and blunt criticism of others.
When they were both 24 years old and living temporarily in San Francisco, they decided to start their own business, scraping together $1 million in seed funds for the new venture, Three Arrows Capital. They doubled the money in just two months and headed for Singapore, where there is no capital gains tax.
In their early days, they used currency arbitrage to cash in on mispriced quotes from various brokers in the foreign exchange market, sometimes getting gains of just fractions of a cent on the dollar. When banks would contact them to adjust or call off the trade, they would refuse, which saw them getting cut off by a number of financial institutions in 2017.
One former trader told Wieczner: “We FX traders are partly to blame for this because we knew for a fact that these guys were not able to make money in FX. But then when they came to crypto, everyone thought they were geniuses.”
The duo then transitioned into trading crypto, where the same currency arbitrage tactics served them well initially, However, some investors started to suspect something wasn’t right about the company in 2019, when they offered to sell off their stake in the Deribit crypto options exchange for $700 million despite the value of the investment only being $289 million.
They would then go on to brag about making a $2 billion investment in Grayscale Bitcoin Trust (GBTC), but their hesitance to sell saw them lose everything. Davies later admitted that he knew the value of their GBTC investment would drop in a podcast, but he asked the producers to remove the admission before airing the show; they complied.
Later, their bets on Terra and sister coin Luna failed to pan out. According to Singapore-based investor Herbert Sim, 3AC saw its holdings fall from around $500 million to a meager $604 as a result of the collapse.
These days, Zhu and Davies are reportedly in hiding, and lenders are unable to reach them; some say it’s because they are trying to evade organized crime figures who loaned them money they can’t pay back.
Instead of spending the summer on the $50 million superyacht they ordered and had been showing off in photos at parties, the boat sits unclaimed as they filed for bankruptcy and disappeared before making the final payment. Their whereabouts remain unknown, but they have said in the past they planned to go to Dubai, which does not have an extradition agreement with the U.S. or Singapore. All told, Three Arrows Capital now owes $3.5 billion to 27 different companies.
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