I’ve been investing for over 20 years.
One of the darkest times I remember is the failure of Lehman Brothers in 2008.
At the time, it was the fourth-largest investment bank in the U.S.
And with its collapse, our country was tipped into a financial crisis.
I’m seeing the same thing playing out right now in the crypto markets.
A month ago, the LUNA protocol and its stablecoin, UST, collapsed.
The protocol was built with a fatal flaw that allowed it to expand rapidly.
But there was no backstop once investors lost faith in UST’s peg to the U.S. dollar.
This event wiped out nearly $60 billion of crypto value in less than a few weeks.
This cast a dark cloud across the crypto landscape.
Now that the crypto tide is going out, we’re starting to get a look at who’s swimming naked.
And it looks like the market just revealed an ugly truth about a popular DeFi app…
The Story Behind the Latest Crypto Crash
Just over this past weekend, another $200 billion was erased from the crypto markets.
If you were wondering about the story behind this latest crash, look no further than Celsius.
Celsius is an app that lets users earn interest on their cryptos by lending and staking them across DeFi.
A few days ago, someone on Twitter mentioned the company might not be properly funded.
Celsius CEO Alex Mashinsky quickly clapped back:
However, these rumors tipped off a digital bank run.
It sent bitcoin down to $21,000, its lowest point in 18 months.
Within 24 hours, Celsius announced it was halting withdrawals.
In banking, confidence is everything. After LUNA, investors are moving funds first and asking questions later.
Celsius: Revealed at Last
The run on Celsius shook the crypto markets, but as it turns out, its reckoning was long overdue.
Celsius is supposed to make it easy to invest and earn yield from DeFi protocols.
As you can see, there’s a huge point of failure here because an investor doesn’t really know how Celsius handles their funds.
And there, as Shakespeare says, is the rub.
It appears Celsius:
- Misled investors.
- Lost funds in exploits like LUNA.
- Wasn’t transparent about customers’ reserves on its balance sheets.
And the company has a history of missteps.
Critics have raised concerns about its unusually high yields (over 18.6%) and its exposure to LUNA.
To make matters worse, Celsius’ CFO was arrested in November.
He faces charges of fraud, money laundering and sexual assault.
Regulators across various states have already been looking into Celsius’ activities.
New Jersey went as far as issuing a cease-and-desist order last September.
Now, halting customer withdrawals will likely be the death knell for Celsius.
Its CEL token traded as high as $8 last summer.
After Monday’s rout, it traded as low as $0.07 before rebounding to $0.30.
CEL Traded as Low as $0.07 on Monday
Customers are running for the exits because the company isn’t protected by FDIC insurance.
That means its roughly 1.7 million users might not recover all of their deposits.
And for Celsius, there’s no coming back from that.
Weak Actors Flame Up and Burn Away
What we’re witnessing is the part of the crypto cycle where the weak actors flame up and burn away.
It’s a natural part of capitalism for creative destruction to weed out the good from the bad.
It will direct more capital to the winners and set the table for the next crypto bull market.
Regards,
Editor, Strategic Fortunes
P.S. If you’d like to learn more, stay tuned to Winning Investor Daily for the next two weeks. In my next crypto event, I’m going to address the crypto market’s recent crash. I’ll reveal why this downturn is actually good for cryptos and why it’s setting the market up for a historic bull run. Be on the lookout for more details soon.
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