The crypto and NFT winter continues, but data suggests this might be the bottom
Three Arrows Capital continues to suffer as weakened markets make the fund’s remaining assets even less valuable. We take a look at how their Starry Night Capital blue-chip NFT fund has been affected by drops in crypto prices and a diminished appetite for expensive collectibles.
- 3AC’s Starry Night Capital fund was set up to expose users to the NFT market via their portfolio of blue chip collections. Now administrators are auctioning off those assets as they attempt to recoup losses and pay back debtors.
- NFT markets have failed to recover to anywhere near their peaks, and anyone who bet large amounts of money on continued price increases is now suffering losses.
- By one metric, the market is down by nearly 92%. But following four months of relative stability, there is a hint that this is the bottom. Questions remain over whether the market will ever climb again.
Three Arrows Capital’s recent capitulation fits into a bigger pattern we’ve all witnessed sweep across DeFi and Web3. Companies overstretched themselves during the bull run and then found they could not stay liquid when markets contracted.
It’s a story as old as time, and the winners over the past year will be those who could see that the good times don’t last forever. But for those companies who invested in dodgy stablecoins and assumed price increases were perpetual, this period will be a difficult one.
3AC and their Starry Night Capital fund
The 3AC story blew up towards the end of June and the narrative hasn’t improved for the investment fund since then. In July, the company filed for Chapter 15 bankruptcy and reports suggest it lost more than $3 billion over 2021 and 2022.
The capitulation was part of the wider crypto crisis that has struck the industry this year. The TerraUSD crash, along with the Tornado Cash sanctions and Celsius freezing customer withdrawals, have affected confidence in DeFi. The breakdown at 3AC was brought on by these problems but is now contributing to the broader problems.
3AC’s huge losses and bankruptcy means authorities are now looking to recoup funds and return money to investors. This is where the Starry Night Capital fund comes in.
Starry Night Capital was 3AC’s blue-chip NFT collection designed to give investors exposure to the once-booming NFT market. The $100 million fund launched in August 2021, as a partnership between 3AC and pseudonymous NFT collector Vincent Van Dough.
Now, unfortunately, the investment firm has run into a compounded problem brought on by the crypto winter. They’ve run out of money because of systemic problems in DeFi. And the assets they hold to pay off their debts have dropped in value, also due to the systemic problems in DeFi. It’s an issue wrapped in a problem wrapped in a crisis.
2022’s NFT market collapse
Reports began surfacing in Q2 about issues in the NFT market. Those small ripples soon became waves as sales volumes for non-fungible tokens have continued to drop. The graph below shows that trading volumes for NFTs have fallen back to levels last seen in June 2021, before the bull run.
The best month for NFT trading was in August 2021, when users bought and sold $5.18 billion worth of non-fungible collectibles, digital artworks, items and assets. Last month, in September 2022, trading was down at $0.44 billion. That’s a drop of 91.85% and goes a long way to explaining the difficult situation in which Three Arrows Capital finds itself.
With crypto prices down, and the speculative bubble well and truly burst, the previously feverish interest in NFTs has subsided. Now, only the committed and the hopeful remain in the market, so overall demand has dropped. The graph below shows that sales counts have been down since January, when traders bought and sold 10.23 million NFTs.
In September 2022, the sales count had dropped to 4.21 million, which is a decrease of 58.85%. Trading dropped steadily between the January peak and May, before declining abruptly in June. If there’s any silver lining in this story for the NFT community, the sales count has leveled off over the past four months, so this could be the bottom before any potential bull run.
Looking at this information, it’s clear why any fund or company relying wholly on the value of risky cryptocurrencies and NFTs for their survival is now in trouble. Using DappRadar’s Portfolio tracker, we can also see in granular detail how the NFTs in Starry Night Capital’s Web3 wallet have depreciated in value since they acquired them.
The Starry Night Capital fund NFT wallet
According to information from Dune Analytics, the Starry Night Capital fund spent just over $35 million on NFTs. This is only 35% of the entire $100 million fund, so questions remain over where the remainder of that money is. It should be noted at this point that Dune’s data is incomplete, as it does not track every asset the fund holds or bought.
Using DappRadar’s Portfolio tool, we can see inside these wallets and discover what’s in there. We can also see how well each item has performed financially. This gives us a good idea of how much money the Starry Night Capital fund has lost as a result of depreciated NFT values.
This wallet contains what we believe is Starry Night Capital’s most expensive single holding of NFTs. Using DappRadar’s NFT Value Estimator, we think it’s currently worth $17.39 million. This is some way off the $35 million the fund is supposed to have spent and it’s a long way off the $100 million that they originally launched with.
If we look at the graphic below, we can see that its holdings of each project has gone down in value. Their CryptoPunks collection has dropped 69% from $3.02 million to $940,776. The fund’s Deafbeef holdings have fallen 70% from $594,954 to $173,362.
Even their three Autoglyphs NFTs, which have gone up in ETH value, have dropped in the dollar. This is a result of the depreciated price of ETH. Starry Night Capital spent $1.99 million on their Autoglyphs that are now worth $1.32 million. This is a drop of 34%.
To calculate the profit and loss of the Starry Night Capital’s Wallet A, we use machine-learning algorithms and take into account factors such as the price of similar NFTs and the overall collection’s current trading activity.
Gnosis Safe wallet
With Three Arrows Capital declaring bankruptcy and in the process of liquidation, administrators have been brought in to carry out the location and sale of the company’s assets. Teneo is a company based in the British Virgin Islands and is leading the process.
Teneo released a statement with the following information:
Thanks to the cooperation of VincentVanDough (“VVD”), all Starry Night Capital NFTs, of which VVD is aware, have been accounted for and are in our possession or are being transferred to us.Teneo
The statement went on to say:
In an effort to preserve as much capital as possible VVD has offered to assist with the eventual sale of all 3AC NFTs and will likely be working with us to oversee the disposal of these assets.Teneo
Looking at recent wallet activity, we can see that since the beginning of October, Teneo has started transferring NFTs from this wallet to this Gnosis Safe wallet. Presumably their eventual goal is to gather all Starry Night Capital’s NFTs into one single wallet and then begin liquidating them.
This could be a good opportunity to get your hands on some cut-price blue chips. So keep an eye on the Gnosis wallet by clicking on the button below.
Fire sales all over NFT land
BendDAO Bored Apes
Three Arrows Capital and their Starry Night Capital fund are not the only NFT whales who have been caught holding the bag while others have run off with the profits. BendDAO is another platform that has been hit by the price drops; in their case it’s the crater values of Bored Apes.
BendDAO is a peer-to-peer lending platform that lets people use their NFTs as borrowing collateral. Users can borrow between 30% and 40% of the NFT’s floor price but if this floor drops to a certain level, the NFT will automatically go up for auction.
There are 272 Bored Apes bought with BendDAO loans, which equates to 2.72% of the entire BAYC collection. Now that the floor price is hovering around the 74 ETH mark, there’s a huge risk that many of these NFTs will enter the red zone and go up for sale.
Bear in mind that back in May, the BAYC floor price was 144.9 ETH, which was more than $400,000 at the time. This ongoing crypto winter could lead to lots of cheap Apes hitting the market.
Logan Paul’s overprice 0N1 Force NFT
Logan Paul was also recently in the news as another big spender who’s lost big on NFTs. He bought K4M-1 #03 on August 23rd 2021 for 188 WETH, which was $626,393 at the time. Its value now? Reportedly $10.
Although this isn’t quite the whole story. If we check out K4M-1 #03 on DappRadar’s NFT Explorer, we can see it has a current estimated price of $8,728. That’s still a huge drop of 98.6%, but at least Paul can still recoup some of his wasted money.
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