Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.
Speaker 1: And this is Bloomberg Crypto, a dearly Bloomberg I Heart podcast.
Speaker 1: It's Thursday, July twenty one. Today my colleague Emily Nicole
Speaker 1: will be your guest host. I'll be back with you tomorrow. Hi.
Speaker 1: I'm Bloomberg Crypto blogger Emily Nicole. The crypto Winter of
Speaker 1: two has claimed several casualties so far, but as of late,
Speaker 1: there's one name that's on everyone's lips. Celsius Network, the
Speaker 1: crypto lender that's now trying to save its skin through
Speaker 1: Chapter eleven bankruptcy. As prices spiraled and customers rushed to
Speaker 1: withdraw their crypto from the platform, Celsius buckled under the weight.
Speaker 1: Now we know it's a massed around five point five
Speaker 1: billion dollars in liabilities, but only has about four point
Speaker 1: three billion in assets to back it up. Its largest creditor, Farros,
Speaker 1: is connected to sam bankmunt Freed, one of crypto's biggest investors.
Speaker 1: To give you the lowdown on what's happening at Celsius
Speaker 1: and what it tells us about rising heat in this sector,
Speaker 1: I'm joined by Bloomberg Crypto Senior editor Anna Arera and
Speaker 1: reporter Olga Career. Hi, guys, thanks for joining me today.
Speaker 1: So let's just kind of get started with the lay
Speaker 1: of the land, because not everybody listening to this might
Speaker 1: be super familiar with with who we're talking about here. Olga,
Speaker 1: what is Celsius, what does it do? And you know,
Speaker 1: why is it different to so called crypto banks? Sure? So,
Speaker 1: Celsius emerged a few years ago as a so called
Speaker 1: crypto lender, So essentially it allowed anybody to deposit um
Speaker 1: their digital coins into Celsius and to earn interest on
Speaker 1: those coins as you would in a bank, except for
Speaker 1: Celsius was not a bank. Celsius has now filed for
Speaker 1: Chapter eleven bankruptcy, a major crypto lender, went from managing
Speaker 1: billions in assets to filing for bankruptcy in just a
Speaker 1: matter of what. Celsius made headlines last month after freezing
Speaker 1: its customer accounts, and this is the third major crypto
Speaker 1: platform in the last few weeks to file for bankruptcy,
Speaker 1: following similar filings from Three Hours Capital and Voyage of Digital.
Speaker 1: Pretty much all the struggling firms in crypto right now
Speaker 1: blaming their situations on the current market downturn. But Anna,
Speaker 1: do you think that's a first statement for them to
Speaker 1: make The current market downturn does not help that, that's clear.
Speaker 1: But obviously, you know, there's some fault with the company
Speaker 1: themselves and some of the risk they took, which are
Speaker 1: pretty big risks, right we're seeing with Celsius. Obviously they
Speaker 1: were giving very big returns to their customers, and obviously,
Speaker 1: in finance in general, not just in crypto finance, when
Speaker 1: you give big returns, it comes with very big risks.
Speaker 1: So they might have been a bit more prudent with
Speaker 1: the risk management, let's say, and that that could have
Speaker 1: helped them, you know, withstand the heat now, because obviously,
Speaker 1: you know, big firms have collapsed, but there are other
Speaker 1: big firms that are still standing and have withstood a
Speaker 1: number of crypto crashes. This is not the first and
Speaker 1: will probably not be the last. And if I just
Speaker 1: may jump in to add to what Anna said, you know,
Speaker 1: it's interesting if you look at Celsius bankruptcy filing, you
Speaker 1: will see that they've had a lot of issues even
Speaker 1: before the crypto crash that was started when the Terra
Speaker 1: blockchain collapsed. They pretty much if you look at all
Speaker 1: the issues at Celsius, it's an array of issues that
Speaker 1: are all over crypto, but you rarely see all of
Speaker 1: them happen to one single company. You know, this particular
Speaker 1: company managed to lend money to Three Arrows Capital, which
Speaker 1: went bankrupt. They managed to give their money to a
Speaker 1: company that lost private keys to their funds. They managed
Speaker 1: to find a lender who gave the money, but after
Speaker 1: they returned the money wouldn't give them the collateral back.
Speaker 1: You know. It just the list goes on and on
Speaker 1: and on, and it just seems like Celsius had a
Speaker 1: lot of issues before the crypto crisis even started really
Speaker 1: dropping the last couple of months. But like Anna said,
Speaker 1: that certainly did not help them dig out of this
Speaker 1: hole that they were already in. Yeah, and and and
Speaker 1: Celsius has been around for a while, right, it was
Speaker 1: founded in twenty seventeen, and so it's been through these
Speaker 1: winter periods before. Okay, how do you think that Celsius
Speaker 1: is perceived in the industry. It's CEO, Alex Maschinsky has
Speaker 1: been known to accuse people of spreading food, you know,
Speaker 1: the cryptoactor acronym for fear uncertainty and doubt on Twitter,
Speaker 1: and also recently a former employee filed a lawsuit alleging
Speaker 1: that the whole business is a Ponzi scheme. So it's
Speaker 1: got a bit of a reputation here as well. Absolutely
Speaker 1: it certainly does you know Celsius So Alex Maschinski used
Speaker 1: to do an am a with users about once a week,
Speaker 1: and essentially this was a lot of chest pumping, and
Speaker 1: you would get a lot of people sort of commenting
Speaker 1: or calling in a saying, oh, you know, I invested
Speaker 1: all of my life savings or all of my retirement
Speaker 1: into Celsius. I believe in you guys. And of course,
Speaker 1: as we know, crypto is so volatile, all of the
Speaker 1: advisors say never invest your retirement money into something this volatile.
Speaker 1: So to begin with, I think it was a very
Speaker 1: dangerous place for people to put their money, as we
Speaker 1: are finding out now. And I think this weekly sessions
Speaker 1: where you know, Alex Maschinsky essentially rallied the troops. They
Speaker 1: might have created a bit of a false sense of
Speaker 1: safety for some of the users who invested their coins
Speaker 1: into Celsius and Nana. This is like a proper industry problem, right,
Speaker 1: mission SKI isn't the first CEO that we've seen attack
Speaker 1: people on Twitter for saying their platforms bad or is
Speaker 1: doing something wrong, and then you know how it will
Speaker 1: come back to bite them. Yeah. Of course in crypto
Speaker 1: is a very Twitter driven industry, as we all know,
Speaker 1: and so that makes it a bit more transparent and
Speaker 1: you can interact with big players directly. But then it
Speaker 1: also raises an issue that you have CEOs of companies
Speaker 1: that might be getting into trouble directly interacting with investors
Speaker 1: and giving them information that might or might not be
Speaker 1: true and making them want to invest right. So you'd
Speaker 1: probably not see CEOs of of other financial companies coming
Speaker 1: on Twitter and saying, hey, you know, give us your money,
Speaker 1: this is a great investment in some cases because you're
Speaker 1: not allowed to. And and then as you're saying yes,
Speaker 1: of course they do, they do attack you back if
Speaker 1: you try to say something in a way it's somewhat cultish.
Speaker 1: I've had experiences when maybe you're trying to give them
Speaker 1: information or saying information that you've reported and you're you're
Speaker 1: pretty sure are of course you're sure it's true if
Speaker 1: you're reporting it, and that could help an investor make
Speaker 1: more informed decisions. In a token that they hold or
Speaker 1: in something that they want to buy, and yet you
Speaker 1: get attacked as if you know you're it's personal to you,
Speaker 1: and obviously to a reporter it's not personal. Anna You
Speaker 1: and I also worked on another story about Celsius, you know,
Speaker 1: in the interests of transparency here digging into a little
Speaker 1: deeper into the largest credits of US, which turns out
Speaker 1: to be linked to a little known London based hedge
Speaker 1: fund called Lantern Ventures, which has quite a few degrees
Speaker 1: of connection to Sam Bankman Free, the FTX co founder.
Speaker 1: How has he been a part of the crypto meltdown
Speaker 1: so far? He's very much been at the center of it,
Speaker 1: not because he's gone bankrupt, his companies have been one
Speaker 1: of the biggest creditors, or in some cases we've seen
Speaker 1: him both owed money to a company and also been
Speaker 1: owed money from that company. So he's very much been
Speaker 1: a big player. And so it was quite surprising to
Speaker 1: find that even in this case he there was a connection. Right.
Speaker 1: Obviously there was a direct connection because Alameda, the sort
Speaker 1: of hedge fund that he founded was old money, was
Speaker 1: one of the creditors of Celsius. But then there was
Speaker 1: also this fund who sort of no one, no one
Speaker 1: kind of recognized, and so I was surprising to find
Speaker 1: that the founders of this fund or the company that
Speaker 1: runs the fund were also sort of indirectly connected to him,
Speaker 1: and that the CEO was one of the co founders
Speaker 1: of Alameda, and that the many people that worked at
Speaker 1: the firm had worked at an organization where where Sam
Speaker 1: had worked before. So there's this sort of big, long
Speaker 1: reach that he has and that is quite interesting to
Speaker 1: explore because it sort of highlights how the market is interconnected,
Speaker 1: and obviously the more interconnections you have, the more risk
Speaker 1: of contagions. Thank you both. We'll be right back. And Olga,
Speaker 1: you've been covering some bag Freed for quite a while.
Speaker 1: You've been speaking to him pretty much ever since he
Speaker 1: first arrived on the scene. Why do you think it's
Speaker 1: important to be to be tracking that presence across the
Speaker 1: market and how do you kind of see it playing
Speaker 1: out of the minute? Is it what you expected to
Speaker 1: find when you first started talking to him? You know,
Speaker 1: it's interesting. So in the past, there have been well
Speaker 1: in a number of entities that have been very important
Speaker 1: in the crypto market and had deep pockets. They were
Speaker 1: say coin Base and Buying Ends and some bank Mont
Speaker 1: Freeds companies and a number of others. What happened in
Speaker 1: recent months is that a number of companies have been
Speaker 1: affected by this following crypto prices actually point bas is
Speaker 1: one example, they've been impacted by the decline and retail
Speaker 1: trading and the sharp decline and their stock price. Now
Speaker 1: after we've seen this latest shakeout take place, we basically
Speaker 1: have a bit of a duopoly in the crypto markets.
Speaker 1: You know, it's some bank Mont Freed and Binance, you know,
Speaker 1: are believed to be the big parties that have the
Speaker 1: cash for bailouts and for you know, expanding their network
Speaker 1: of business interests in this downturn, which is kind of
Speaker 1: what you want to do if you're able to. And
Speaker 1: so a lot of people are basically following this two
Speaker 1: now key very important players in this industry to see
Speaker 1: what kind of moves they're going to make, who they're
Speaker 1: gonna choose to save, who they're going to pass on.
Speaker 1: They all of a sudden have a lot of power
Speaker 1: in this industry. Do you think that bankruptcy filings are
Speaker 1: going to become the go to option for businesses who
Speaker 1: are in need because if we think about what it
Speaker 1: means to be decentralized. A lot of what has gone
Speaker 1: on over the last few months has shown just how
Speaker 1: far away crypto is from achieving that dream. Often these
Speaker 1: companies are turning to the centralized authorities and the processes
Speaker 1: is to get them out of that. Um Anna, do
Speaker 1: you have any thoughts on that. A bitcoin maximalist, this
Speaker 1: sort of confirms their ethos is that you should be
Speaker 1: your own bank, So you should definitely not give your
Speaker 1: money to Celsius to lend out, because it just confirms
Speaker 1: the whole point. But clearly sort of the industry was
Speaker 1: so much more than just bitcoin maximalism, and that what
Speaker 1: it's been becoming for for many years. In a way,
Speaker 1: even though crypto wants to rein finance, it is it's
Speaker 1: not reinventing finance in in a better way, but it's
Speaker 1: just sort of repeating the mistakes, which is kind of
Speaker 1: taking on too much risk and possibly doing some of
Speaker 1: the things that were happening in the financial crash. But
Speaker 1: we're the new form of asset. I think the troubles
Speaker 1: that we are seeing and have seen them in the
Speaker 1: last few months, they really related to centralized companies. I mean,
Speaker 1: they were in crypto, but they were centralized companies run
Speaker 1: by specific teams, you know, they were incorporated and so forth.
Speaker 1: What I think a lot of crypto enthusiasts and vision
Speaker 1: is they have this vision of decentralized finance where apps
Speaker 1: created their basically code that sits on a blockchain and
Speaker 1: it runs everything, and there are no centralized companies or
Speaker 1: entities running the whole thing, and it's more fair and
Speaker 1: it's more efficient. In my opinion, this vision is still,
Speaker 1: of course to be realized, but we are very slowly
Speaker 1: inching towards it, and I think it's going to be
Speaker 1: a big deal and very transformative when it's achieved at
Speaker 1: some point, maybe a few years down the road. And
Speaker 1: there are a few examples of applications of the decentralized
Speaker 1: finance already that are very successful. And one of the
Speaker 1: sort of takeaways from this crash for crypto die hearts
Speaker 1: is that this is perhaps a good model, you know,
Speaker 1: the decentralized finance model, because what we've seen in this
Speaker 1: downturn and this latest crashes that centralized companies can be
Speaker 1: mismanaged and they can fail. But so far, at least
Speaker 1: all of the decentralized apps have held up and they're
Speaker 1: still around, even those apps that have been used heavily
Speaker 1: by some of the companies that are going out of
Speaker 1: business now and have declared bankruptcy, like Celsius for example.
Speaker 1: Can I just step in. I agree with what you're saying.
Speaker 1: I just think sometimes what happens is that during a rally,
Speaker 1: even people that are in the crypto space and that
Speaker 1: are die hards sort of defy people are decentralized finance people,
Speaker 1: there seem to be less criticism of the centralized platforms
Speaker 1: until the centralized platform crash. When everything is going well,
Speaker 1: everybody's friends and like everything is growing and everything is great,
Speaker 1: and then sort of the risks get over sort of shadowed,
Speaker 1: and then when new crisis hits and people say, well,
Speaker 1: we told you shouldn't have put your money on exchange
Speaker 1: that GD because they get hacked. You shouldn't have put
Speaker 1: money there. So I think maybe what sort of a
Speaker 1: lesson that could be learning is here, is like to
Speaker 1: try to make sure that during rallies there's still a
Speaker 1: bit of sort of sense of self criticism of the industry,
Speaker 1: so that issues that are bubbling and that can be
Speaker 1: pretty evident are are highlighted or sort of enhounced by
Speaker 1: everyone before it gets taken too far. Thank you both,
Speaker 1: it's been a pleasure to guest host today's episode. You
Speaker 1: can find more of Anna's work and Auga's reporting on
Speaker 1: the Bloomberg Terminal, on Bloomberg dot com and on Twitter
Speaker 1: at Anna Aurera and at Olga Career. On the next
Speaker 1: episode of Bloomberg Crypto, there's a perception that everything about
Speaker 1: crypto is novel and groundbreaking. The reality is a little
Speaker 1: more complex. There's lots of precedents, for example, for concepts
Speaker 1: like dows or decentralized autonomous organizations or what you might
Speaker 1: have heard as initial coin offerings. This is particularly clear
Speaker 1: right now as crypto is going through its own version
Speaker 1: of a Beer Stearns moment, which all begs the question
Speaker 1: is D five really just inventing trad five with more
Speaker 1: complexity and a sprinkling of blockchain, or is their genuine novelty.
Speaker 1: Here for more on these questions, will have two very
Speaker 1: special guests, Bloomberg Opinion columnist Matt Levine and Bloomberg REPORTA f.
Speaker 1: Muyal Schen. I'm Stacy Marie Ishmael, and this is Bloomberg Crypto,
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Speaker 1: is our engineer. Original music by Leo Sidron