In a high-stakes legal confrontation reverberating from the depths of the 2022 crypto winter, the estate of the bankrupt exchange FTX has forcefully rejected a $1.53 billion claim from the liquidators of the defunct hedge fund Three Arrows Capital (3AC). In a recent court filing, FTX’s lawyers argued that 3AC is owed nothing, attributing the hedge fund's demise entirely to its own reckless, over-leveraged trading strategies. This dispute opens a new chapter in the complex post-mortem of two of the industry's most spectacular collapses, with significant implications for creditors and the valuation of the FTX bankruptcy estate. The core of FTX's argument is that the massive losses incurred by 3AC were self-inflicted, stating, “3AC bet big that cryptocurrency prices would increase using cash it did not have and, when prices instead plummeted, 3AC proceeded to liquidate the risky bets it had placed and withdraw assets from [FTX].” This legal battle is not merely about assigning blame; it's a financial struggle over a finite pool of recovery assets that will determine how much other FTX creditors ultimately receive.

The Heart of the Dispute: A Tale of Two Ledgers

The discrepancy between the two parties' claims is staggering and centers on the events of mid-June 2022, a period of extreme market turmoil. FTX's legal team asserts that on June 12, 2022, the actual net value of assets in 3AC’s accounts was a mere $284 million. This figure was calculated from $1.017 billion in digital assets offset by a negative cash balance of $733 million in US dollars. Furthermore, FTX claims the “first and only” liquidation it ordered occurred on June 14, 2022, when it converted $82 million worth of crypto into cash—a move they contend actually benefited 3AC by de-risking its volatile position. In stark contrast, 3AC’s liquidators, who were previously granted permission by a Delaware court to increase their claim from $120 million, allege that FTX liquidated a much larger sum of $1.53 billion from 3AC's accounts. The court initially sided with 3AC's expanded claim after finding insufficient evidence to substantiate FTX's assertion that the liquidation was to satisfy an undocumented loan. FTX now fires back, accusing the liquidators of grossly inflating the account's value by over $1.2 billion and ignoring that the value erosion was caused by market price declines and 3AC's own withdrawals.

Market Meltdown of June 2022: The Trading Context

To fully grasp the claims, one must revisit the catastrophic market conditions of June 2022. The collapse of the Terra/LUNA ecosystem a month prior had sent a shockwave of contagion through the crypto markets, creating a liquidity crisis. For traders, this was a period of unprecedented volatility. The price of Bitcoin (BTC), for instance, cratered from approximately $31,500 at the start of June to a low of $17,700 by June 18, 2022. Similarly, Ethereum (ETH) plunged from over $1,900 to below $900 in the same timeframe. For a highly leveraged entity like 3AC, which had reportedly taken massive long positions across the market, this price action was fatal. Any firm holding long derivatives or crypto assets with borrowed capital faced immediate margin calls and forced liquidations. This context supports FTX's narrative that 3AC's strategy was untenable in the face of such a dramatic market downturn, making its collapse an inevitability driven by market forces, not specific actions by the exchange.

Implications for Creditors and the Broader Crypto Market

The outcome of this $1.53 billion dispute has direct and tangible consequences for the market today. The FTX bankruptcy estate is in the process of liquidating its assets to repay creditors, having already begun distributions in May 2024. If FTX successfully voids 3AC's claim, that $1.53 billion remains within the estate, increasing the recovery percentage for all other customers and creditors. Conversely, if 3AC's claim is upheld, it will significantly dilute the pool of available funds. This legal wrangling impacts the perceived value of FTX claims being traded on secondary markets. It also relates to the estate's ongoing management of its vast crypto holdings, which have included the strategic selling of billions of dollars worth of assets like Solana (SOL) and other tokens. A smaller claims pool simplifies the estate's path to maximizing creditor returns. This battle underscores a crucial lesson in counterparty risk. It reveals that even before its own public implosion in November 2022, FTX's internal operations and dealings with major clients were fraught with issues that are still being untangled years later. For traders, it’s a stark reminder of the opacity of centralized platforms and the hidden risks that can surface long after the fact. All eyes will now be on the July 11 deadline for 3AC to file its objection, leading up to a pivotal court hearing scheduled for August 12.