2022’s Most Spectacular Crypto Trading Blowups

Right when you thought crypto couldn’t get any worse in 2022, it did. And then it did. And then it did again.

It’s been the most trying year for crypto traders in a long time. Scores booked record losses in a matter of weeks or — in more cases than one — days and even hours. The carnage extended to the savviest portfolio managers in the game.

The industry went up against three 100-year floods in fewer than 12 months. Three black swans in less than a year. (There’s no need to recount the disastrous trio for the umpteenth time, right?)

And the toll is still mounting on who closed up shop, considering FTX’s bankruptcy is not likely to be settled for at least a year. That’s not to mention the liquidity crunches of the likes of Genesis. 

On the macro front, 2023 has likewise been a real bear for both TradFi and crypto traders. They’ve all had to grapple with historic inflation and the Fed’s series of rate raises, as well as geopolitical conflicts with high stakes. 

Here’s a look at the biggest digital asset buy-side debacles. 

Alameda Research

Sam Bankman-Fried, Alameda’s founder and one-time chief executive, was incarcerated until Wednesday, when the federal judge overseeing the case against him imposed a monumental bail of $250 million. Alameda is bankrupt. FTX is bankrupt. And a slew of former executives from both of Bankman-Fried’s entities are facing their own criminal or civil inquiries. 

Because Alameda has long been a closely-guarded proprietary trading firm, its exact performance has long been difficult to pin down. Prop trading firms typically run exclusively the money of their partners — as opposed to a hedge or venture fund structure, where limited partners contribute their own capital for the firm’s portfolio managers to be put to work. As a result, word of the varied results of Alameda over the years have been hard to come by.

But, considering the SEC, the CFTC and federal prosecutor’s extensive allegations and related changes — including that FTX’s top brass was commingling funds with Alameda, it must be beyond bad. 

How quickly things fell apart may well have been foreshadowed by the sudden and unexpected departure of Sam Trabucco earlier this year, who at the time served as the firm’s co-chief executive, alongside Caroline Ellison, who recently pleaded guilty to a host of federal charges in the US.

Multicoin Capital 

The longtime crypto-focused hedge and venture fund firm lost 51% in about two weeks in November. 

In part, the steep drop was fueled by a substantial amount of its assets being custodied on FTX — including cash, spot assets and unsettled derivatives. While the firm’s traders were able to claw back a decent chunk of that overall amount, the damage had been more than done.

Multicoin’s results were a stark departure from the firm’s typically solid performance showings over the years as the asset manager has over time become an increasingly attractive destination for some of the largest investors in crypto to park their funds. Its investor roster consists of almost exclusively institutional capital, which is no small feat among its crypto peers. 

In addition to the FTX’s custody of its assets, Multicoin was hit hard, in general, by the market’s rampant volatility on the heels of the exchanges collapse. It also has had a longstanding bullish thesis on Solana’s native token, SOL, which was steeply dragged down in the fourth quarter.

In part because of the proof-of-stake cryptocurrency’s deep ties to Bankman-Fried, who helped incubate related ecosystem projects, such as the startup Serum. 

Three Arrows Capital

Hindsight being what it is, Three Arrows had more than a little in common with Archegos, Bill Hwang’s family office that likewise imploded a couple of years back.

Archegos was essentially using a series of derivative swap trades to conceal how much leverage Hwang and his team actually were employing — hint: tons — from the Wall Street prime brokerages that extended that margin to the family office. The end result was Archegos being able to build up an absolutely unprecedented portfolio of about $100 billion, counting the immense amounts of leverage Hwang was able to wrangle.

Like Archegos, Three Arrows concealed how much exposure to markets — cryptocurrency, in its case, of course — it really had and how much leverage it employed. It, too, turned out to be quite a lot.

Three Arrows, run by co-founders Su Zhu and Kyle Davies, had racked up a remarkable amount of debt from crypto lenders and prime brokers to finance a series of remarkably over-leveraged trades. 
The story of the firm — if not that of Zhu and Davies — ended with a massive liquidation.

---

Get the news in your inbox. Explore Blockworks newsletters:

• The Breakdown: Decoding crypto and the markets. Daily.
• Empire: Crypto news and analysis to start your day.
• Forward Guidance: The intersection of crypto, macro and policy.
• 0xResearch: Alpha directly in your inbox.
• Lightspeed: All things Solana.
• The Drop: Apps, games, memes and more.
• Supply Shock: Bitcoin, bitcoin, bitcoin.