More and more factors may suggest that the lending platform founded in 2017 mismanaged its liquidity, running to its own loss.
Will Celsius company be the first Lehman Brothers in the crypto ecosystem? The question may arise. What is certain is that the parallel between the financial crisis of 2008 and the recent crypto-crash is increasingly striking, if we take the prism of liquidity.
“The problem comes from the race for liquidity, that’s what lost Lehman and what puts some cryptocurrency-related companies out of business,” IG analyst Vincent Boy told BFM Crypto.
In 2008, some banks that no longer had enough cash to cover their positions – such as Lehman Brothers – went bankrupt. Since the fall of cryptocurrencies in May – bitcoin has lost 70% of its value since its high of $69,000 last November – some crypto companies have been singled out for mismanaging their cash, like Celsius.
Founded in 2017, Celsius wanted to act as “a bank” within the cryptocurrency ecosystem, but documents seen by the Wall Street Journal reveal that the company was far from having the same guarantees as a bank in the event of a glitch. .
An unbalanced asset/equity ratio
In particular, we learn that when it last raised $750 million last fall, Celsius had $19 billion in assets and about $1 billion in equity (19:1), a clearly disproportionate ratio in a market characterized by high volatility.
At that time, Celsius had a ratio twice as large as the median asset-to-equity ratio of a US bank in the S&P 1500, which is 9:1, the newspaper points out. Big banks “often have ratios close to Celsius’s, but they hold much more stable assets and have access to central bank loans for liquidity,” the paper added.
“It’s just a risky structure,” said Eric Budish, an economist at the University of Chicago business school. “It looks diversified to me the same way mortgage portfolios were diversified in 2006,” in reference to a feature of the 2008 financial crisis. “It was all housing, here it’s all crypto.”
Like many crypto companies, Celsius has grown very quickly amid growing user interest in cryptocurrencies. Celsius had also forecast that its deposits (which were 12 billion before the freezing of its assets last month) were to exceed … 108 billion dollars in 2023. It also expected revenues of 6.6 billion dollars. in 2023. That was before predicting the first crypto crash.
Three weeks ago, in the context of a sharp fall in cryptocurrencies, Celsius told its 1.7 million customers that they could no longer withdraw or transfer their funds. It was considered one of the hottest crypto lending platforms in the market.
This decision was justified by a need to manage “its liquidities and its operations, while taking measures to protect the assets of the customers”, had indicated the team. “We have taken this step to put Celsius in a better position to meet its withdrawal obligations over time,” she added.
The lending platform had managed to win over many customers, attracted to the idea of achieving returns of up to 18% by depositing certain cryptocurrencies there.
Chapter 11 or “Hold” mode?
Where is Celsius now? According to the specialized media The Block, Celsius would seek to resist the advice of its lawyers to use Chapter 11 of the bankruptcy law.
“With the company’s management prevented from commenting publicly due to legal advice, Celsius believes that many of its retail customers would prefer the company to avoid bankruptcy, according to people with knowledge of the situation. To that end, the users can show their support by enabling ‘HODL mode’ in their Celsius account, these people said,” says The Block.
A bank that is placed under chapter 11 of the American law, does that remind you of anything? This was the case for Lehman Brothers on September 15, 2008.