Cryptocurrencies: Celsius on the brink of bankruptcy?

Interest rates over 18% for savers but 0.1% for borrowers, that’s what Celsius Network offered before all withdrawals had to be suspended on June 12 due to lack of sufficient liquidity. Three weeks later, the funds, which reached $11.8 billion in mid-May, are still locked up. “I think Celsius will go bankrupt,” predicts Omid Malekan, a professor at Columbia University. “The Essence of Trust [des clients] flew”.

The Celsius lending platform, founded in 2017, wanted to act as “a bank” within the cryptocurrency ecosystem, but according to documents revealed by the Wall Street Journal as of June 30, Celsius has $19 billion in assets, compared to $1 billion in stocks. As a result, Celsius has an asset-to-equity ratio of 19 to 1. By comparison, the average asset-to-equity ratio of North American banks is 9 to 1. According to specialist media The Block, Celsius would like to oppose the advice. of his attorneys to use Chapter 11 of the bankruptcy law.

Since then, other names have joined Celsius, from CoinFlex to Babel Finance, which had also dived into credit and had to freeze withdrawals, while Voyager Digital had to limit them. On these platforms, after depositing cryptocurrencies, a user can receive interest or borrow digital currencies, with their deposit serving as collateral. “It’s a shame we’ve come to this,” laments one user contacted via Reddit who claims to have left Celsius more than $350,000.

The streak started with the sharp decline in cryptocurrencies and bitcoin halved its value in less than two months. This set off a chain reaction, forcing borrowers to provide new financial guarantees or immediately repay the borrowed money. Some, such as Singaporean investment firm Three Arrows Capital, which is now in liquidation, were unable to cope and thus robbed the platforms of liquidity, forcing them to freeze the funds.

“Most of these companies have issued loans with no collateral or with insufficient collateral,” said Antoni Trenchev, co-founder of Nexo, another crypto platform that he says got away with stricter lending policies and “prudent risk management.” As many as five US states have opened or extended investigations into Celsius. Some, including Alabama, had already ordered the platform to stop lending to customers residing in their state since last year.

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“Great need for regulation”

The fall of Celsius emphasizes the limits of an unguarded universe. “There is a great need for regulation,” emphasizes Charles Jansen. “It’s a point that everyone in the industry agrees on.”

In the absence of an ad hoc regulatory framework, it has so far been the US market police officer, the SEC, who took matters into their own hands, but from an essentially repressive angle. Several dozen bills have been introduced in the US Congress in recent months, but one of them has had the wind in its sails because it is supported by members of both parties. The text has been well received by the cryptocurrency community, particularly as it proposes to treat cryptocurrencies as commodities, not financial securities, as the SEC would like.

Conversely, some critics find it too conciliatory. “He’s giving the crypto industry what it wants,” Hilary Allen, a US law professor, wrote on Twitter. In particular, he suggests entrusting oversight to another regulator, the CFTC, “which has no mandate to protect investors and has far fewer resources than the SEC,” the academic stressed.

The European Union took the lead on Thursday, reaching an agreement on cryptocurrency regulation, which will notably strengthen investor guarantees and oversight. The Standard & Poor’s agency sees in recent events a window to position itself as a benchmark, much like in the world of traditional finance. For Charles Jansen, “the general feeling is that if there had been a more reliable risk assessment, perhaps fewer people would have been affected.”

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