Be careful what you ask for: and if you wanted an unregulated beyond the kin of government to rake in the cash like the big boys without the sort of regulation designed to protect average investors from themselves. Well, you’re welcome. Celsius Network LLC, a cryptocurrency lender, offered exactly what was asked for until it halted all withdrawals in June and filed for bankruptcy the next month, leaving depositors scrambling to get back some $4.7 bn in deposits.
Let’s not start with saying that Celsius was a Ponzi scheme, just that it did a fair impression of one. Founded in 2017 by Alex Mashinsky to “upend traditional banking,” paying up to 17% on its crypto deposits, something no regulated bank would do, and making loans with crypto as the collateral. These things tend to work well enough on high returns and new investors are piling in – then again Ponzi schemes generally do.
Since the end of last year – when bitcoin hit $60,000 per, cryptos have broadly lost some 75% of their value. The company is restructuring and the scattering of retail investors are banning together on social media and making YouTube Channels to follow the progress of Celsius through its restructuring. Which is where the fundamental misunderstanding between what the real and virtual comes in: Your social media presence is of limited value in US Bankruptcy court. As Curt Dell told the Wall Street Journal, “I’m getting a crash course in bankruptcy law.”
The collapsing price is only part of the problem the industry is facing. Investors are finding out that cryptocurrency was tied a little closer to the dark and bloody earth than the tech bro liked to imagine. With the cost of electricity about twice what is was last year, the energy intensive computing rigs that “mine” cryptos now cost twice as much to get an asset is worth less than half than the previous year. The pinch has caused Compute North Holdings – a data center company that owns and operates bitcoin mining rigs – to file the bankruptcy this summer.
Mashinsky said in a PR release regarding the bankruptcy in July, “I am confident that when we look back on the history of Celsius, we will see this as a defining moment.”
Proving that the company’s founder has, among other things, a keen sense of the obvious.