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Comment by LatteLazy | Hacker News Reader

I am confused: The only logical reason to borrow BTC is if you think it will go down. If Three Arrow really thought BTC was headed to 2.5m a coin, then they could never sell/spend the coins they borrowed, as the price of buying back to repay the loan would be too high.

So logically they must have been shorting BTC.

And if they were shorting BTC, they should have made ~30% profit in the last few months right?

So what the fuck is actually happening here? Were they lying about being bullish on BTC? And they somehow made an even bigger loss somewhere else that means their BTC short isn't enough to counter that? Or what?

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You can borrow btc then use that btc to take 5x leveraged positions on btc.

If number go up, you make billions. If number go down 20% you default on loan. Absolute scumbag behaviour of course.

I guess that makes more sense. But then you're only 4x exposed to BTC (god help you). Why not borrow USD and do the same and get 5x leverage

What's that thing about if you owe the bank 10k you're in trouble, but if you owe them 10m they're in trouble? :)

Because BTC kept going up fast, and your 4X BTC bet meant you got keep borrowing more to plow back into BTC.

I wonder whether it could be as simple as getting a loan in USD requiring stricter terms: he seems like the kind of guy who’d balk at doing more work to get less money, even if that’s ill-advised from a risk perspective.

3ac probably made 3 bad trades:

- long ust/luna

- long gbtc, short btc

- long steth, short eth

will focus on last two trades in this comment.

gbtc is like a bond that eventually pays out as btc when regulatory approval comes.

steth is like a bond that eventually pays out as eth a few months post-merge.

but in the aftermath of the luna/ust crisis and general crypto bear, there was a flight to safety (gbtc is less liquid than btc, steth is less liquid than eth), causing the gbtc/btc and steth/eth spreads to widen instead of narrow, and 3ac was caught out of position.

tldr: they probably profited some from short btc but lost more on long gbtc.

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