In the middle of a heat wave, how can you not have your eardrums smoking because of the CeFI platform Celsius Network? This virtual currency behemoth, estimated to be worth $25 billion, is now worth only $167 million. The news came down on July 14, shaking the Bitcoin world once again: the company is declaring bankruptcy and initiating Chapter 11 bankruptcy proceedings. After the fall of Terra Luna and its UST, it’s around the flagship of crypto credit to create FUD in an economic context in full recession and a Bitcoin that maintains a value around $21,000 despite inflation. Perhaps another case for the FBI?
- Celsius Network, the crypto credit Giant with Clay Feet
- Persistent rumors that sound the death knell for the Celsius Network
- A strange account management
- A more than doubtful top management
- Goldman Sachs, a miraculous buyer
- The Celsius Network rescue plan
- Let’s play the same game with the same people !
- Celsius Network in the grip of lawsuits
Celsius Network, the crypto credit Giant with Clay Feet
Celsius Network promised its users to buy, swap, get rewards, send crypto-currencies and get credits. Initially between individuals, then expanding its offer to everyone.
With its success, and its investors who intended to speculate and make capital gains through electronic currencies, everything seemed to succeed to the company based on a virtual economy and thanks to the soaring of its CEL Token.
With the help of a financial mechanism, focused on private transactions with very low fees and high returns, the company managed to grow at a record speed.
With more and more transactions being exchanged, we were far from suspecting that behind this success story serious problems were going to make all its investor clients go through a descent into hell.
Their hopes of making a profit were dashed and they found themselves alone with their capital frozen. Stunned and caught off guard, they are now trying to recover their investments while trying to figure out how Celsius got there.
Some even feel like they’ve been cheated like newbies as they watch their Btc, ethers, Tron, Ripple or various coins frozen on the centralized exchange platform wondering when Celsius will allow the next transaction.
Persistent rumors that sound the death knell for the Celsius Network
Last May, withdrawal problems appeared, and more and more complaints from disgruntled customers were added, who are still waiting for the company to validate their transactions in order to recover the digital assets they invested.
This situation is considered unacceptable since it goes against the company’s policy of promising its customers to be able to withdraw their investment whenever they want. Especially since the company has never stopped since its inception to frequently highlight how their application was more secure than that of banks…
The eyes of the cryptosphere on Celsius Network fueled the FUD, leading other customers to want to withdraw their funds. Alas, these were not bugs and the rumors began to fly.
Add to that a CEO in radio silence and a team in total denial on Twitter and you get a strong loss of confidence.
A loss of confidence that became total on June 13th with the pause of withdrawals due to “lack of liquidity” and obviously in “the interest of the community”.
Yeah, we’ve had better excuses to hide a bankruptcy:
A strange account management
A document filed by Celsius in bankruptcy shows that the company owes 4.7 billion in crypto to its customers. However, the company only has $1.2 billion of which only $167 million is in cash. But where did the company’s fortune go?
Sam Bankman Fried, famous CEO of FTX and generous billionaire, wanted to save Celsius by buying it out. As a lender and creditor, he naturally positioned himself as a buyer. But then, after having noticed the abysmal cash flow, he withdrew.
We are talking about an abyss of almost 2 billion dollars. These shortfalls, minimized between 100 million and 200 million dollars in 2021 are attributed to the former CFO of Celsius a man named Yarom Shalem.
Arrested by the police in December 2021 in Israel, he was dismissed from Celsius, which still minimizes the facts. The deception of the loss of value of the company will not last long.
A more than doubtful top management
According to Alex Mashinsky, CEO of Celsius Network, the problems the company is going through are due to a combination of bad investments, bad market conditions and an inability to manage the company’s meteoric growth.
Of course, it’s also the haters’ fault.
The situation was under control until June 13. The rope is tightening around the company when we look at its top management.
We learn that a vast net of the Israeli police during an investigation on crypto scams, including money laundering, has led to the arrest of its CFO Yarom Shalem in November 2021, bringing discredit on the company.
Stranger still, it seems that a scammer, also arrested at the same time and already known to the police, has also worked in the past with the CFO of Celsius and this in direct relation with its CEO for advice. Is this a coincidence? It would not be surprising if these facts attract the attention of the American regulators demanding concrete explanations.
In addition to these reasons, the market has fallen and the value of Celsius‘ assets has dropped from 22 billion to only 4.3 billion. A small -17.7 billion dollars that feels good.
Goldman Sachs, a miraculous buyer
About 3 weeks ago, Goldman Sachs, the American banking and stock market giant offered to buy Celsius for $2 billion, highlighting the massive adoption of the traditional financial sectors of the cryptocurrency world.
Enough to make up for its deficit and why not put Celsius back on track? And above all, allow Goldman Sachs to get low-cost crypto-currencies for its clients’ wallets and increase its notoriety in the blockchain world.
A great deal to make nice profits by positioning itself on key assets of the decentralized technology that blockchain represents. And why not offer the same services as Celsius in the future (digital transactions / staking lending)?
In any case, Goldman has clearly understood the boon that the cryptocurrency market and the Celsius trading platform represent. And if this purchase is successful, the American bank will become an important player in the decentralized ecosystem with a centralized platform and virtual currencies. Nevertheless, the CEO of Celsius seems to have other ideas in mind…
The Celsius Network rescue plan
On its website, Celsius Network warns that transactions are frozen until further notice. So that’s the end of many transactions from this crypto financial institution.
However, the company says that its customers’ wallets will continue to accumulate their rewards during this period. But how does the company plan to cope?
Well, by relying on a total restructuring and its assets, such as its 80,500 mining rigs, of which about 43,000 are still mining bitcoins (BTC) right now despite the bankruptcy filing.
Let’s hope the bitcoin price soars as the mined cryptos will of course be used to pay off Celsius‘ debts. The company could imagine reselling them, but unfortunately the current state of the market does not allow for significant profits…
Let’s play the same game with the same people !
Who says miracle product, also says miracle solution and here is the one brought by Celsius after having made his community vote:
“We freeze the transactions and start over with better management.”
Too bad she didn’t get her community to vote on embezzlement.
Yeah, it’s a bit like déjà vu with the recent Terra Luna fork proposed to her community, but let’s not rub it in.
The management of the company shows a total lack of respect towards the investors of this project, which was promising at the beginning, and which had raised several funds, the last of which amounted to 400 million dollars.
Concerning the investors, the company proposes two choices:
- Recover part of their funds in cash by assuming losses;
- HODL in the meantime to recover if possible all their funds.
A thought to all the investors who will probably not see their investment in the short term nor the return on investment because of the lack of liquidity, responsible for many bankruptcies in the financial world.
And as we have seen, even if everyone decides to opt for a refund, it will surely not be possible given the low number of liquid assets that the company has, which used to promise the most attractive rates on the market (up to 18.6% for “secured” investments).
Celsius Network in the grip of lawsuits
Braga Eagle & Squire, P.C., a law firm that has already sued Do Kwon, the CEO of Terraform Labs, as well as the infamous Three Arrows Capital fund, announced on July 24 that it is launching a lawsuit against Celsius Network and Alexander Mashinsky, its CEO, as well as two firms attached to the company and three other individuals.
The charges against Celsius Network are as follows:
- violations of the Exchange Act by misleading investors
- intentionally making false and misleading statements
- omissions of material facts
- sale of unregistered securities and financial products.
This action being in collaboration with all persons and entities that purchased securities of the company between February 9, 2018 and July 13, 2022… the number of plaintiffs is quite large!
Seeing repeated bankruptcy situations in the blockchain universe, a yet well-known adage makes sense: Not your keys, not your cryptos! This sentence must resound in the head of those who do not sleep at night because of Celsius. And you, what do you think about the bankruptcy of Celsius? Is it another Ponzi scheme, or is it just bad management as its CEO claims? With a 2 billion hole, do you think the company has definitively sealed its fate, becoming the Lehman Brothers of the crypto or a Mt.Gox 2.0? Finally, will it drag in its loss other players in an already weakened ecosystem? The next step for Celsius taking place on August 8 at 10am: wait and see.
Co-founder of Coinpri, Expert in blockchain and NFT, I vulgarize the new web3 and blockchain paradigm here.