Watch: The Titan Flash on the fall of crypto lender Celsius

Wednesday, Jun 15th 2022

Commentary

The crypto market had a horrible weekend, with Bitcoin and Ethereum falling more than 20%.

Yes, rising rates aren’t a friend to this nascent asset class, but the true culprit in our eyes of this recent fall was a crypto lender called Celsius.

You may be unfamiliar with the company, but with over 1.7 million users, billions in AUM, and over $850M raised from venture capitalists – many believed Celsius had the potential to usher the world into Defi.

You can think of Celsius as the crypto version of a bank. Users deposit crypto holdings and earn interest on deposits, very similar to a traditional savings account.

Unlike the negligible interest earned with a bank, Celsius promoted yields north of 18% APY on crypto deposits – risk-free.

If risk-free high teen yields seem too good to be true, that’s because it is.

Celsius used customer capital to invest in exotic Defi protocols, and we question if these customers truly understood how their capital was earning such great yield.

This whole operation looked far more like a highly leveraged hedge fund vs. a lending platform: effective in bull markets as prices go higher, but in a bear market things can quickly go awry. We’ve said it before, but we believe that leverage and crypto do not go well together.

Then, on Sunday, as crypto prices continued their historic retreat falling below $1 trillion in total market cap, Celsius suspended all withdrawals citing “extreme market conditions.” People wanted their money back, but Celsius didn’t have enough liquidity to fulfill these requests.

Amidst a fragile market, solvency risk is the last thing investors want to deal with and contagion from this mess could continue to spread throughout the world of crypto,

Growing pains and bad actors will always exist in an arena that champions innovation with unbounded potential.

Regulators in Washington DC have been busy drafting proposed regulations for the crypto market, and we welcome those sooner rather than later. It is clear that the consumer must be protected before we can ultimately unlock the true power of decentralized finance.

The news on Celsius certainly hurts sentiment in an already fragile time, but in our eyes, the failure of this Jersey-based lender does not stifle the potential of long-term growth prospects for this industry-changing technology.

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