Will Celsius be the next Lehman Brothers?

More and more factors may indicate that the lending platform founded in 2017 mismanaged its liquidity and led to its own loss.

Will the Celsius company become the first Lehman Brothers in the crypto ecosystem? The question may arise. What is certain is that the parallel between the 2008 financial crisis and the recent crypto crash becomes more and more striking if we take the prism of liquidity.

“The problem comes from the race for liquidity, which is what Lehman lost and what is driving some cryptocurrency-related companies out of business,” IG analyst Vincent Boy told BFM Crypto.

In 2008, some banks that no longer had enough money 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 firms have been singled out for mismanaging their money, such as Celsius.

Founded in 2017, Celsius wanted to act as “a bank” within the cryptocurrency ecosystem, but documents seen by the Wall Street Journal show that the company had far from the same guarantees as a bank in the event of a failure.

An unbalanced asset-to-equity ratio

In particular, we learn that when Celsius last raised $750 million last fall, it had $19 billion in assets and about $1 billion in equity (19:1), a markedly disproportionate ratio in a market characterized due to high volatility.

At the time, Celsius had a ratio twice the median asset-to-equity ratio of a US bank in the S&P 1500, which is 9:1, the paper reported. Major banks “often have ratios close to Celsius, but they have much more stable assets and 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 seems diversified to me the same way mortgage portfolios diversified in 2006,” referring to a hallmark of the 2008 financial crisis. “It was all housing, here it’s all crypto.”

Like many other crypto companies, Celsius has grown very quickly due to the growing interest of users in cryptocurrencies. Celsius had also predicted that its deposits (which were $12 billion before the asset freeze last month) would exceed…$108 billion by 2023. It also expected $6.6 billion in revenue in 2023, before the first cryptocurrency was forecast. Crash.

Three weeks ago, in the context of a sharp decline in cryptocurrencies, Celsius told its 1.7 million customers they could no longer withdraw or transfer their funds. It has been considered one of the most popular crypto lending platforms on the market.

This decision was justified by the need to “manage its liquidity and its operations while taking measures to protect customers’ assets,” the team had indicated. “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, drawn to the idea of ​​getting returns of up to 18% by depositing certain cryptocurrencies there.

Chapter 11 or “Hold” mode?

Where is Celsius now? According to specialist media The Block, Celsius would like to oppose the advice of his lawyers to use Chapter 11 of the bankruptcy law.

“With the company’s management unable to comment publicly due to legal advice, Celsius believes many of its retail customers would rather see the company go out of business, according to those with knowledge of the situation. To that end, users can show their support by Enable ‘HODL mode’ in their Celsius account, these people said,” explains The Block.

A bank that falls under Chapter 11 of US law, does that remind you of anything? This was the case for Lehman Brothers on September 15, 2008.

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