(Adds news on Genesis Trading, background on BlockFi liquidation)

June 17 (Reuters) - Cryptocurrency hedge fund Three Arrows Capital Ltd is exploring options, including the sale of assets and a bailout by another firm, the Wall Street Journal reported on Friday.

The crypto market has suffered heavy losses, with companies such as Coinbase, Gemini, Blockfi and Crypto.com laying off thousands of employees, as investors sell risky assets in a rising interest rate environment.

On Thursday, the Financial Times reported that Three Arrows Capital failed to meet margin calls last weekend.

The 10-year-old hedge fund, founded by Su Zhu and Kyle Davies, has hired legal and financial advisers to help work out a solution for investors and lenders, according to the Wall Street Journal, which quoted the founders. https://on.wsj.com/3mUHpWT

Cryptocurrency markets were rocked last month by the spectacular collapse of terraUSD and its sister token luna after the stablecoin lost its peg to the dollar.

"The Terra-Luna situation caught us very much off guard," Davies said, according to the Wall Street Journal, adding that Three Arrows invested about $200 million in Luna.

On Friday, Genesis Trading Chief Executive Michael Moro tweeted that his digital asset prime brokerage "mitigated our losses" with a large counterparty that failed to meet a margin call earlier in the week.

Moro said New York-based Genesis sold and hedged all of the liquid collateral from the counterparty which did not meet the margin call to minimize any downside, and that no client funds were affected.

"We will actively pursue recovery on any potential residual loss through all means available, however our potential loss is finite and can be netted against our own balance sheet as an organization," Moro said.

New Jersey-based crypto lender BlockFi was among several groups that liquidated at least some of Three Arrows' positions, according to the FT report on Thursday, citing unidentified sources familiar with the matter.

BlockFi CEO Zac Prince tweeted on Thursday that his company liquidated collateral against a loan to a large client that he did not name.

"We fully accelerated the loan and fully liquidated or hedged all the associated collateral," he said. (Reporting by Mehnaz Yasmin in Bengaluru and Hannah Lang in Washington; Editing by Amy Caren Daniel and Richard Chang)