An in-depth look at the rise and fall of crypto hedge fund Three Arrows Capital, whose founders Su Zhu and Kyle Davies bet everything on prices only going up
Days before Bitcoin fell decisively below $40,000, and two months before his hedge fund went bankrupt, Su Zhu sat down for an interview …
Context & Ripple Effects
Three Arrows Capital’s failure followed reports that the fund faced an uncertain future after a $400M-plus liquidation, despite Su Zhu’s statement that the firm was working through the situation. The later bankruptcy frames that episode as the break point in a strategy built on rising crypto prices.
Related coverage subsequently shifts from the immediate liquidation to the founders’ account of leverage, Luna and risk management, and then to a fuller examination of the reputation the firm lost in its collapse.
First-order effects
- Three Arrows Capital’s bankruptcy converts a trading loss into a failed-fund event, ending the firm’s ability to operate on the assumption that crypto prices will keep rising.
- Su Zhu and Kyle Davies are directly identified with the concentrated bullish bet that failed as Bitcoin moved decisively below $40,000.
Second-order effects
- The reported liquidation and bankruptcy force the public assessment of Three Arrows Capital away from its prior reputation and toward its leverage and risk-management choices.
- Bitcoin’s price break becomes the market event against which Three Arrows Capital’s strategy is judged, tying the fund’s collapse to downside exposure rather than its earlier gains.
Third-order effects
- The Three Arrows Capital episode points to a durable fault line in crypto investing: funds whose strategy depends on continuously rising prices can move rapidly from market participants to insolvency when leverage meets a sharp reversal.
The trend: Crypto’s boom-and-bust cycles are testing whether investment firms’ leverage and risk controls can withstand price declines rather than merely amplify bull-market returns.