Behind the Celsius Sales Pitch Was a Crypto Firm Built on Risk (wsj.com) 21
Celsius Network CEO Alex Mashinsky built his cryptocurrency lender into a giant on a pitch that it was less risky than a bank with better returns for customers. But investor documents show the lender carried far more risk than a traditional bank. From a report: The lender issued numerous large loans backed by little collateral, according to Celsius investor documents from 2021 reviewed by The Wall Street Journal. The documents show that Celsius had little cushion in the event of a downturn, and made investments that would be difficult to quickly unwind if customers raced to withdraw their money. Celsius had $19 billion of assets and roughly $1 billion of equity as of last summer, before it raised new funds, according to Celsius investor documents from 2021 reviewed by the Journal. The median assets-to-equity ratio for all the North American banks in the S&P 1500 Composite index was about 9:1, or about half that of Celsius, according to data from FactSet.
For banks, that ratio is of great importance: Regulators look at it as an indicator of risk. For unregulated companies like Celsius, the ratio of 19-1 is particularly high given that some of its assets were investments in the extremely volatile crypto sector, said Eric Budish, an economist at the University of Chicago's business school who studies cryptocurrencies. Large banks often have ratios near Celsius's, but they hold much more stable assets and have access to central-bank loans for ready cash. [...] Founded in 2017 by Mr. Mashinsky, Celsius surged amid the crypto boom to become one of the biggest crypto lenders, with more than $12 billion in deposits. Customers, wooed by high interest rates, flooded in, while venture capitalists showered it with money. Contrasts with banks were at the center of Mr. Mashinsky's public persona. Mr. Mashinsky frequently said Celsius passed along 80% of its lending revenue to customers in the form of its high yields. He often wore a black T-shirt reading, "Banks are not your friends." Compared with banks, "we have much less risk, but we've managed to deliver high single-digit, low double-digit numbers," Mr. Mashinsky told the YouTube channel CTO Larsson in August. Mr. Mashinsky said on a podcast last month that while "normally in panic, everybody runs to the bank and withdraws their money because they're afraid the bank is going to fail," Celsius had proven different in crypto downturns, as its business increased.
For banks, that ratio is of great importance: Regulators look at it as an indicator of risk. For unregulated companies like Celsius, the ratio of 19-1 is particularly high given that some of its assets were investments in the extremely volatile crypto sector, said Eric Budish, an economist at the University of Chicago's business school who studies cryptocurrencies. Large banks often have ratios near Celsius's, but they hold much more stable assets and have access to central-bank loans for ready cash. [...] Founded in 2017 by Mr. Mashinsky, Celsius surged amid the crypto boom to become one of the biggest crypto lenders, with more than $12 billion in deposits. Customers, wooed by high interest rates, flooded in, while venture capitalists showered it with money. Contrasts with banks were at the center of Mr. Mashinsky's public persona. Mr. Mashinsky frequently said Celsius passed along 80% of its lending revenue to customers in the form of its high yields. He often wore a black T-shirt reading, "Banks are not your friends." Compared with banks, "we have much less risk, but we've managed to deliver high single-digit, low double-digit numbers," Mr. Mashinsky told the YouTube channel CTO Larsson in August. Mr. Mashinsky said on a podcast last month that while "normally in panic, everybody runs to the bank and withdraws their money because they're afraid the bank is going to fail," Celsius had proven different in crypto downturns, as its business increased.
No Shit Sherlock.... (Score:4, Insightful)
*facepalm*
More risk than a traditional bank? (Score:3)
Colour me shocked, shocked, shocked! Not.
A traditional bank is regulated, need to have clear audit logs and pretty high reserves, much of which cannot be in loans. It gets audited all the time and it complies with regulation, because otherwise people go to prison. Sure, corrupt politicians allow things to get less strict over time, but no crapcoin peddler even comes remotely close to what a traditional bank does and has to do.
The amount of stupidity and sheer incompetence observable in customers and "investors" of crapcoin-"businesses" is really staggering.
I knew it! (Score:5, Funny)
Behind the Celsius Sales Pitch Was a Crypto Firm Built on Risk
I can get behind the rest of the Metric system, but for some reason I've always preferred Fahrenheit over Celsius, but I was never quite able to put my finger on why. This explains it: it had crypto bros and scammers behind it, trying to push their garbage like usual.
Vindication at last!
Re: (Score:2)
Re: I knew it! (Score:2)
Celsius was born about 70 years after the Dutch tulip mania in the 1630's, so I bet he would be quick to see the parallels.
Re: (Score:2)
Re: (Score:2)
Actually, the reason Fahrenheit is preferable is that the degrees are smaller, so it's easier to guess how comfortable a particular temperature will be. Celsius is better for chemistry and industrial processes, but Fahrenheit is better for room temperatures (and for whether is picnic is a good idea).
(OTOH, it's not THAT much better. Wind and humidity cause so much variation that they often swamp the difference in degree size.)
Re: (Score:2)
Technically the metric system uses Kelvin for temperature. Celsius is really just a convenient way to scale the range to something more "people friendly" since water freezing at 273K is a bit annoying (273.15-ish), though ro
Re: (Score:2)
Technically...
The fact that I can post that joke and get a “technically” response is why I love Slashdot. Cheers!
How could we have known? (Score:5, Insightful)
Re: (Score:2)
Well, you know, anybody that is familiar with the principle that things that look too good to be true are usually not true. I do agree that the people that do understand this principle and can apply it seem to be getting rarer in the human race and this does by far not only apply to crapcoins.
Re: (Score:2)
Re: (Score:2)
Indeed. I mean crapcoins are basically worse in all respects than the current banking system. That does not make the banking system good, but it makes it superior. Moving away from something without a cold, hard look at what you are moving to is simply foolish.
Three arrows (Score:3)
Re: (Score:3)
Nice! Not unexpected, but nice nonetheless. I wait in breathless anticipation what insane claims will be made but the morons to explain reality away.
Re: (Score:3)
Re: (Score:2)
CoinFlex paused withdrawals last Thursday after an unnamed counterparty, a high-net-worth individual with “substantial shareholdings in several unicorn private companies and a large portfolio” experienced liquidity issues and failed to repay debt.
So much for "a high-net-worth individual".
Re: (Score:2)
CoinFlex paused withdrawals last Thursday after an unnamed counterparty, a high-net-worth individual with “substantial shareholdings in several unicorn private companies and a large portfolio” experienced liquidity issues and failed to repay debt.
So much for "a high-net-worth individual".
Well, "high-fantasy-net-worth individual" might be more appropriate.
Re: (Score:2)
I'm sure they will call it a conspiracy against altcoins. They will say they were "ordered" into liquidation, and without being so ordered, they would have been just fine.
Yes, probably. A "Dolchstosslegende" so popular with people that have fucked up massively but cannot admit that.
tell me more about this "risk free" approach (Score:2)
What is this trying to say?