WEBVTT - Temperatures Rise at Celsius

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<v Speaker 1>I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.

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<v Speaker 1>And this is Bloomberg Crypto, a dearly Bloomberg I Heart podcast.

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<v Speaker 1>It's Thursday, July twenty one. Today my colleague Emily Nicole

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<v Speaker 1>will be your guest host. I'll be back with you tomorrow. Hi.

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<v Speaker 1>I'm Bloomberg Crypto blogger Emily Nicole. The crypto Winter of

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<v Speaker 1>two has claimed several casualties so far, but as of late,

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<v Speaker 1>there's one name that's on everyone's lips. Celsius Network, the

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<v Speaker 1>crypto lender that's now trying to save its skin through

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<v Speaker 1>Chapter eleven bankruptcy. As prices spiraled and customers rushed to

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<v Speaker 1>withdraw their crypto from the platform, Celsius buckled under the weight.

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<v Speaker 1>Now we know it's a massed around five point five

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<v Speaker 1>billion dollars in liabilities, but only has about four point

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<v Speaker 1>three billion in assets to back it up. Its largest creditor, Farros,

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<v Speaker 1>is connected to sam bankmunt Freed, one of crypto's biggest investors.

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<v Speaker 1>To give you the lowdown on what's happening at Celsius

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<v Speaker 1>and what it tells us about rising heat in this sector,

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<v Speaker 1>I'm joined by Bloomberg Crypto Senior editor Anna Arera and

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<v Speaker 1>reporter Olga Career. Hi, guys, thanks for joining me today.

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<v Speaker 1>So let's just kind of get started with the lay

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<v Speaker 1>of the land, because not everybody listening to this might

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<v Speaker 1>be super familiar with with who we're talking about here. Olga,

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<v Speaker 1>what is Celsius, what does it do? And you know,

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<v Speaker 1>why is it different to so called crypto banks? Sure? So,

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<v Speaker 1>Celsius emerged a few years ago as a so called

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<v Speaker 1>crypto lender, So essentially it allowed anybody to deposit um

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<v Speaker 1>their digital coins into Celsius and to earn interest on

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<v Speaker 1>those coins as you would in a bank, except for

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<v Speaker 1>Celsius was not a bank. Celsius has now filed for

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<v Speaker 1>Chapter eleven bankruptcy, a major crypto lender, went from managing

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<v Speaker 1>billions in assets to filing for bankruptcy in just a

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<v Speaker 1>matter of what. Celsius made headlines last month after freezing

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<v Speaker 1>its customer accounts, and this is the third major crypto

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<v Speaker 1>platform in the last few weeks to file for bankruptcy,

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<v Speaker 1>following similar filings from Three Hours Capital and Voyage of Digital.

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<v Speaker 1>Pretty much all the struggling firms in crypto right now

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<v Speaker 1>blaming their situations on the current market downturn. But Anna,

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<v Speaker 1>do you think that's a first statement for them to

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<v Speaker 1>make The current market downturn does not help that, that's clear.

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<v Speaker 1>But obviously, you know, there's some fault with the company

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<v Speaker 1>themselves and some of the risk they took, which are

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<v Speaker 1>pretty big risks, right we're seeing with Celsius. Obviously they

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<v Speaker 1>were giving very big returns to their customers, and obviously,

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<v Speaker 1>in finance in general, not just in crypto finance, when

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<v Speaker 1>you give big returns, it comes with very big risks.

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<v Speaker 1>So they might have been a bit more prudent with

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<v Speaker 1>the risk management, let's say, and that that could have

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<v Speaker 1>helped them, you know, withstand the heat now, because obviously,

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<v Speaker 1>you know, big firms have collapsed, but there are other

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<v Speaker 1>big firms that are still standing and have withstood a

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<v Speaker 1>number of crypto crashes. This is not the first and

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<v Speaker 1>will probably not be the last. And if I just

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<v Speaker 1>may jump in to add to what Anna said, you know,

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<v Speaker 1>it's interesting if you look at Celsius bankruptcy filing, you

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<v Speaker 1>will see that they've had a lot of issues even

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<v Speaker 1>before the crypto crash that was started when the Terra

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<v Speaker 1>blockchain collapsed. They pretty much if you look at all

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<v Speaker 1>the issues at Celsius, it's an array of issues that

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<v Speaker 1>are all over crypto, but you rarely see all of

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<v Speaker 1>them happen to one single company. You know, this particular

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<v Speaker 1>company managed to lend money to Three Arrows Capital, which

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<v Speaker 1>went bankrupt. They managed to give their money to a

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<v Speaker 1>company that lost private keys to their funds. They managed

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<v Speaker 1>to find a lender who gave the money, but after

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<v Speaker 1>they returned the money wouldn't give them the collateral back.

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<v Speaker 1>You know. It just the list goes on and on

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<v Speaker 1>and on, and it just seems like Celsius had a

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<v Speaker 1>lot of issues before the crypto crisis even started really

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<v Speaker 1>dropping the last couple of months. But like Anna said,

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<v Speaker 1>that certainly did not help them dig out of this

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<v Speaker 1>hole that they were already in. Yeah, and and and

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<v Speaker 1>Celsius has been around for a while, right, it was

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<v Speaker 1>founded in twenty seventeen, and so it's been through these

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<v Speaker 1>winter periods before. Okay, how do you think that Celsius

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<v Speaker 1>is perceived in the industry. It's CEO, Alex Maschinsky has

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<v Speaker 1>been known to accuse people of spreading food, you know,

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<v Speaker 1>the cryptoactor acronym for fear uncertainty and doubt on Twitter,

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<v Speaker 1>and also recently a former employee filed a lawsuit alleging

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<v Speaker 1>that the whole business is a Ponzi scheme. So it's

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<v Speaker 1>got a bit of a reputation here as well. Absolutely

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<v Speaker 1>it certainly does you know Celsius So Alex Maschinski used

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<v Speaker 1>to do an am a with users about once a week,

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<v Speaker 1>and essentially this was a lot of chest pumping, and

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<v Speaker 1>you would get a lot of people sort of commenting

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<v Speaker 1>or calling in a saying, oh, you know, I invested

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<v Speaker 1>all of my life savings or all of my retirement

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<v Speaker 1>into Celsius. I believe in you guys. And of course,

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<v Speaker 1>as we know, crypto is so volatile, all of the

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<v Speaker 1>advisors say never invest your retirement money into something this volatile.

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<v Speaker 1>So to begin with, I think it was a very

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<v Speaker 1>dangerous place for people to put their money, as we

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<v Speaker 1>are finding out now. And I think this weekly sessions

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<v Speaker 1>where you know, Alex Maschinsky essentially rallied the troops. They

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<v Speaker 1>might have created a bit of a false sense of

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<v Speaker 1>safety for some of the users who invested their coins

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<v Speaker 1>into Celsius and Nana. This is like a proper industry problem, right,

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<v Speaker 1>mission SKI isn't the first CEO that we've seen attack

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<v Speaker 1>people on Twitter for saying their platforms bad or is

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<v Speaker 1>doing something wrong, and then you know how it will

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<v Speaker 1>come back to bite them. Yeah. Of course in crypto

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<v Speaker 1>is a very Twitter driven industry, as we all know,

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<v Speaker 1>and so that makes it a bit more transparent and

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<v Speaker 1>you can interact with big players directly. But then it

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<v Speaker 1>also raises an issue that you have CEOs of companies

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<v Speaker 1>that might be getting into trouble directly interacting with investors

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<v Speaker 1>and giving them information that might or might not be

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<v Speaker 1>true and making them want to invest right. So you'd

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<v Speaker 1>probably not see CEOs of of other financial companies coming

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<v Speaker 1>on Twitter and saying, hey, you know, give us your money,

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<v Speaker 1>this is a great investment in some cases because you're

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<v Speaker 1>not allowed to. And and then as you're saying yes,

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<v Speaker 1>of course they do, they do attack you back if

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<v Speaker 1>you try to say something in a way it's somewhat cultish.

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<v Speaker 1>I've had experiences when maybe you're trying to give them

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<v Speaker 1>information or saying information that you've reported and you're you're

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<v Speaker 1>pretty sure are of course you're sure it's true if

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<v Speaker 1>you're reporting it, and that could help an investor make

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<v Speaker 1>more informed decisions. In a token that they hold or

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<v Speaker 1>in something that they want to buy, and yet you

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<v Speaker 1>get attacked as if you know you're it's personal to you,

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<v Speaker 1>and obviously to a reporter it's not personal. Anna You

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<v Speaker 1>and I also worked on another story about Celsius, you know,

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<v Speaker 1>in the interests of transparency here digging into a little

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<v Speaker 1>deeper into the largest credits of US, which turns out

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<v Speaker 1>to be linked to a little known London based hedge

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<v Speaker 1>fund called Lantern Ventures, which has quite a few degrees

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<v Speaker 1>of connection to Sam Bankman Free, the FTX co founder.

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<v Speaker 1>How has he been a part of the crypto meltdown

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<v Speaker 1>so far? He's very much been at the center of it,

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<v Speaker 1>not because he's gone bankrupt, his companies have been one

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<v Speaker 1>of the biggest creditors, or in some cases we've seen

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<v Speaker 1>him both owed money to a company and also been

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<v Speaker 1>owed money from that company. So he's very much been

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<v Speaker 1>a big player. And so it was quite surprising to

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<v Speaker 1>find that even in this case he there was a connection. Right.

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<v Speaker 1>Obviously there was a direct connection because Alameda, the sort

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<v Speaker 1>of hedge fund that he founded was old money, was

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<v Speaker 1>one of the creditors of Celsius. But then there was

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<v Speaker 1>also this fund who sort of no one, no one

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<v Speaker 1>kind of recognized, and so I was surprising to find

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<v Speaker 1>that the founders of this fund or the company that

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<v Speaker 1>runs the fund were also sort of indirectly connected to him,

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<v Speaker 1>and that the CEO was one of the co founders

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<v Speaker 1>of Alameda, and that the many people that worked at

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<v Speaker 1>the firm had worked at an organization where where Sam

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<v Speaker 1>had worked before. So there's this sort of big, long

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<v Speaker 1>reach that he has and that is quite interesting to

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<v Speaker 1>explore because it sort of highlights how the market is interconnected,

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<v Speaker 1>and obviously the more interconnections you have, the more risk

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<v Speaker 1>of contagions. Thank you both. We'll be right back. And Olga,

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<v Speaker 1>you've been covering some bag Freed for quite a while.

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<v Speaker 1>You've been speaking to him pretty much ever since he

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<v Speaker 1>first arrived on the scene. Why do you think it's

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<v Speaker 1>important to be to be tracking that presence across the

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<v Speaker 1>market and how do you kind of see it playing

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<v Speaker 1>out of the minute? Is it what you expected to

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<v Speaker 1>find when you first started talking to him? You know,

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<v Speaker 1>it's interesting. So in the past, there have been well

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<v Speaker 1>in a number of entities that have been very important

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<v Speaker 1>in the crypto market and had deep pockets. They were

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<v Speaker 1>say coin Base and Buying Ends and some bank Mont

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<v Speaker 1>Freeds companies and a number of others. What happened in

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<v Speaker 1>recent months is that a number of companies have been

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<v Speaker 1>affected by this following crypto prices actually point bas is

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<v Speaker 1>one example, they've been impacted by the decline and retail

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<v Speaker 1>trading and the sharp decline and their stock price. Now

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<v Speaker 1>after we've seen this latest shakeout take place, we basically

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<v Speaker 1>have a bit of a duopoly in the crypto markets.

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<v Speaker 1>You know, it's some bank Mont Freed and Binance, you know,

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<v Speaker 1>are believed to be the big parties that have the

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<v Speaker 1>cash for bailouts and for you know, expanding their network

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<v Speaker 1>of business interests in this downturn, which is kind of

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<v Speaker 1>what you want to do if you're able to. And

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<v Speaker 1>so a lot of people are basically following this two

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<v Speaker 1>now key very important players in this industry to see

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<v Speaker 1>what kind of moves they're going to make, who they're

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<v Speaker 1>gonna choose to save, who they're going to pass on.

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<v Speaker 1>They all of a sudden have a lot of power

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<v Speaker 1>in this industry. Do you think that bankruptcy filings are

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<v Speaker 1>going to become the go to option for businesses who

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<v Speaker 1>are in need because if we think about what it

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<v Speaker 1>means to be decentralized. A lot of what has gone

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<v Speaker 1>on over the last few months has shown just how

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<v Speaker 1>far away crypto is from achieving that dream. Often these

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<v Speaker 1>companies are turning to the centralized authorities and the processes

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<v Speaker 1>is to get them out of that. Um Anna, do

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<v Speaker 1>you have any thoughts on that. A bitcoin maximalist, this

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<v Speaker 1>sort of confirms their ethos is that you should be

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<v Speaker 1>your own bank, So you should definitely not give your

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<v Speaker 1>money to Celsius to lend out, because it just confirms

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<v Speaker 1>the whole point. But clearly sort of the industry was

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<v Speaker 1>so much more than just bitcoin maximalism, and that what

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<v Speaker 1>it's been becoming for for many years. In a way,

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<v Speaker 1>even though crypto wants to rein finance, it is it's

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<v Speaker 1>not reinventing finance in in a better way, but it's

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<v Speaker 1>just sort of repeating the mistakes, which is kind of

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<v Speaker 1>taking on too much risk and possibly doing some of

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<v Speaker 1>the things that were happening in the financial crash. But

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<v Speaker 1>we're the new form of asset. I think the troubles

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<v Speaker 1>that we are seeing and have seen them in the

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<v Speaker 1>last few months, they really related to centralized companies. I mean,

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<v Speaker 1>they were in crypto, but they were centralized companies run

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<v Speaker 1>by specific teams, you know, they were incorporated and so forth.

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<v Speaker 1>What I think a lot of crypto enthusiasts and vision

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<v Speaker 1>is they have this vision of decentralized finance where apps

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<v Speaker 1>created their basically code that sits on a blockchain and

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<v Speaker 1>it runs everything, and there are no centralized companies or

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<v Speaker 1>entities running the whole thing, and it's more fair and

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<v Speaker 1>it's more efficient. In my opinion, this vision is still,

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<v Speaker 1>of course to be realized, but we are very slowly

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<v Speaker 1>inching towards it, and I think it's going to be

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<v Speaker 1>a big deal and very transformative when it's achieved at

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<v Speaker 1>some point, maybe a few years down the road. And

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<v Speaker 1>there are a few examples of applications of the decentralized

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<v Speaker 1>finance already that are very successful. And one of the

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<v Speaker 1>sort of takeaways from this crash for crypto die hearts

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<v Speaker 1>is that this is perhaps a good model, you know,

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<v Speaker 1>the decentralized finance model, because what we've seen in this

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<v Speaker 1>downturn and this latest crashes that centralized companies can be

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<v Speaker 1>mismanaged and they can fail. But so far, at least

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<v Speaker 1>all of the decentralized apps have held up and they're

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<v Speaker 1>still around, even those apps that have been used heavily

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<v Speaker 1>by some of the companies that are going out of

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<v Speaker 1>business now and have declared bankruptcy, like Celsius for example.

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<v Speaker 1>Can I just step in. I agree with what you're saying.

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<v Speaker 1>I just think sometimes what happens is that during a rally,

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<v Speaker 1>even people that are in the crypto space and that

0:12:53.840 --> 0:12:57.160
<v Speaker 1>are die hards sort of defy people are decentralized finance people,

0:12:57.200 --> 0:13:01.160
<v Speaker 1>there seem to be less criticism of the centralized platforms

0:13:01.240 --> 0:13:03.839
<v Speaker 1>until the centralized platform crash. When everything is going well,

0:13:03.920 --> 0:13:06.920
<v Speaker 1>everybody's friends and like everything is growing and everything is great,

0:13:07.360 --> 0:13:11.280
<v Speaker 1>and then sort of the risks get over sort of shadowed,

0:13:11.320 --> 0:13:14.079
<v Speaker 1>and then when new crisis hits and people say, well,

0:13:14.120 --> 0:13:16.360
<v Speaker 1>we told you shouldn't have put your money on exchange

0:13:16.360 --> 0:13:18.480
<v Speaker 1>that GD because they get hacked. You shouldn't have put

0:13:18.520 --> 0:13:20.520
<v Speaker 1>money there. So I think maybe what sort of a

0:13:20.600 --> 0:13:23.240
<v Speaker 1>lesson that could be learning is here, is like to

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<v Speaker 1>try to make sure that during rallies there's still a

0:13:25.640 --> 0:13:28.480
<v Speaker 1>bit of sort of sense of self criticism of the industry,

0:13:28.520 --> 0:13:31.320
<v Speaker 1>so that issues that are bubbling and that can be

0:13:31.440 --> 0:13:34.679
<v Speaker 1>pretty evident are are highlighted or sort of enhounced by

0:13:34.679 --> 0:13:39.360
<v Speaker 1>everyone before it gets taken too far. Thank you both,

0:13:39.600 --> 0:13:42.320
<v Speaker 1>it's been a pleasure to guest host today's episode. You

0:13:42.320 --> 0:13:44.880
<v Speaker 1>can find more of Anna's work and Auga's reporting on

0:13:44.880 --> 0:13:48.640
<v Speaker 1>the Bloomberg Terminal, on Bloomberg dot com and on Twitter

0:13:48.800 --> 0:13:56.120
<v Speaker 1>at Anna Aurera and at Olga Career. On the next

0:13:56.160 --> 0:13:59.600
<v Speaker 1>episode of Bloomberg Crypto, there's a perception that everything about

0:13:59.640 --> 0:14:03.720
<v Speaker 1>crypto is novel and groundbreaking. The reality is a little

0:14:03.760 --> 0:14:07.439
<v Speaker 1>more complex. There's lots of precedents, for example, for concepts

0:14:07.440 --> 0:14:11.920
<v Speaker 1>like dows or decentralized autonomous organizations or what you might

0:14:11.960 --> 0:14:16.560
<v Speaker 1>have heard as initial coin offerings. This is particularly clear

0:14:16.679 --> 0:14:19.400
<v Speaker 1>right now as crypto is going through its own version

0:14:19.440 --> 0:14:23.040
<v Speaker 1>of a Beer Stearns moment, which all begs the question

0:14:23.560 --> 0:14:27.080
<v Speaker 1>is D five really just inventing trad five with more

0:14:27.120 --> 0:14:31.320
<v Speaker 1>complexity and a sprinkling of blockchain, or is their genuine novelty.

0:14:31.440 --> 0:14:35.040
<v Speaker 1>Here for more on these questions, will have two very

0:14:35.080 --> 0:14:39.640
<v Speaker 1>special guests, Bloomberg Opinion columnist Matt Levine and Bloomberg REPORTA f.

0:14:39.720 --> 0:14:51.360
<v Speaker 1>Muyal Schen. I'm Stacy Marie Ishmael, and this is Bloomberg Crypto,

0:14:51.680 --> 0:14:54.760
<v Speaker 1>a daily podcast from Bloomberg and I Heeart Radio. For

0:14:54.880 --> 0:14:57.080
<v Speaker 1>more shows from I Heeart Radio, visit the I Heart

0:14:57.160 --> 0:15:00.600
<v Speaker 1>Radio app, Apple Podcasts, or wherever you get your podcast.

0:15:01.080 --> 0:15:03.920
<v Speaker 1>Email your questions, comments, or suggestions for the show to

0:15:04.080 --> 0:15:06.760
<v Speaker 1>Crypto at Bloomberg dot net, and you'll find us on

0:15:06.760 --> 0:15:12.480
<v Speaker 1>Twitter at Crypto. The supervising producer of Bloomberg Crypto is

0:15:12.560 --> 0:15:17.040
<v Speaker 1>Vicky Vergalina. Our senior producer is Janet Babin. Our producer

0:15:17.080 --> 0:15:21.080
<v Speaker 1>is Mohammed Feru. Our producer is Sharon Barriro. Our associate

0:15:21.120 --> 0:15:24.720
<v Speaker 1>producers are Zana Sudiki and Thai Butla Desta wonder At

0:15:24.840 --> 0:15:27.760
<v Speaker 1>is our engineer. Original music by Leo Sidron