Cryptocurrency Hedge Fund Scooped UST Stablecoin Amid Price Collapse

by
Altcoins
Cryptocurrency Hedge Fund Scooped UST Stablecoin Amid Price Collapse

Arca, a leading cryptocurrency hedge fund is likely one of the many victims of the dramatic fallout of the Terra (LUNA) ecosystem and its dollar-pegged stablecoin UST, Coindesk reports.

Hedge Funds Hit With the LUNA, UST Collapse

Just a few days ago, Terra’s native token LUNA was among the top ten cryptocurrencies by report market cap. However, in what can only be called a dramatic turnaround, the LUNA token started to crash on May 9 and at the time of writing trades at $0.32.

The dubious crash can be attributed to several factors such as the broader crypto market downturn which led to the de-pegging of Terra’s algorithmic, decentralized stablecoin UST from the dollar.

For the uninitiated, UST is collateralized with bitcoin (BTC). As a result, UST began decoupling from the dollar with the falling BTC price and fell below the required 1:1 peg.

Subsequently, it is being reported that several crypto-focused hedge funds and venture capital firms were hit severely by the sudden collapse of the UST stablecoin. One of these firms is Arca, a crypto hedge fund that manages digital assets worth more than $500 million.

In a note sent out on May 10 to its limited partners, Arca noted that it believes UST will eventually regain its peg and concluded the current situation presents a buying opportunity.

In the same note, Arca mentioned it held an ad hoc investment and risk committee meeting to discuss the dire situation. On May 9, UST crashed to $0.63 and LUNA exchanged hands at $24.60. However, at the time of writing both UST and LUNA trade at $0.60 and $0.32, respectively.

Arca CEO Rayne Steinberg wrote to investors:

“After this analysis, we felt, and continue to feel, that UST will ultimately maintain its peg and a number of attractive opportunities had become available. For example, we were able to purchase UST at a significant discount to par in the DYF (Digital Yield Fund) and then deposit with FTX who were paying 100% APY (annual percentage yield) given the buyer/seller imbalance during peak fear.”

It’s worthy of note that Arca runs a Digital Assets Fund that comprises LUNA as a core holding. Similarly, the stablecoin UST is a core token in Arca’s Digital Yield Fund, the company added in the investor letter.

In the note, Steinberg added:

“We have significant experience in distressed situations from 2008/2009 up to and including SUSHI and LEO (Bitfinex) in recent years. We welcome these opportunities to be buyers when others are fearful.”

Aisshwarya Tiwari

Aisshwarya is currently working as the Chief Editor at crypto.news and holds more than 4 years of experience in the digital assets industry. He holds an undergraduate degree in Commerce with Honours and a post-graduate diploma in Liberal Studies. Before entering the crypto industry, Aisshwarya worked as an SAP Consultant for a global IT firm. He also cleared the CFA Level 1 exam before pivoting to the crypto industry due to its novel and exciting propositions.