Temperatures Rise at Celsius

there's one name that's on everyone's lips. Celsius Network, the crypto lender that's now trying to save its skin through Chapter eleven bankruptcy. As prices spiraled and customers rushed to withdraw their crypto from the platform, Celsius buckled under the weight. Now we know it's a massed around five point five billion dollars in liabilities, but only has about four point

three billion in assets to back it up. Its largest creditor, Farros, is connected to sam bankmunt Freed, one of crypto's biggest investors. To give you the lowdown on what's happening at Celsius and what it tells us about rising heat in this sector, I'm joined by Bloomberg Crypto Senior editor Anna Arera and reporter Olga Career. Hi, guys, thanks for joining me today. So let's just kind of get started with the lay of the land, because not everybody listening to this might

be super familiar with with who we're talking about here. Olga, what is Celsius, what does it do? And you know, why is it different to so called crypto banks? Sure? So, Celsius emerged a few years ago as a so called crypto lender, So essentially it allowed anybody to deposit um their digital coins into Celsius and to earn interest on those coins as you would in a bank, except for

Celsius was not a bank. Celsius has now filed for Chapter eleven bankruptcy, a major crypto lender, went from managing billions in assets to filing for bankruptcy in just a matter of what. Celsius made headlines last month after freezing its customer accounts, and this is the third major crypto platform in the last few weeks to file for bankruptcy, following similar filings from Three Hours Capital and Voyage of Digital. Pretty much all the struggling firms in crypto right now

blaming their situations on the current market downturn. But Anna, do you think that's a first statement for them to make The current market downturn does not help that, that's clear. But obviously, you know, there's some fault with the company themselves and some of the risk they took, which are

pretty big risks, right we're seeing with Celsius. Obviously they were giving very big returns to their customers, and obviously, in finance in general, not just in crypto finance, when you give big returns, it comes with very big risks.

So they might have been a bit more prudent with the risk management, let's say, and that that could have helped them, you know, withstand the heat now, because obviously, you know, big firms have collapsed, but there are other big firms that are still standing and have withstood a number of crypto crashes. This is not the first and

will probably not be the last. And if I just may jump in to add to what Anna said, you know, it's interesting if you look at Celsius bankruptcy filing, you will see that they've had a lot of issues even before the crypto crash that was started when the Terra blockchain collapsed. They pretty much if you look at all the issues at Celsius, it's an array of issues that are all over crypto, but you rarely see all of

them happen to one single company. You know, this particular company managed to lend money to Three Arrows Capital, which went bankrupt. They managed to give their money to a company that lost private keys to their funds. They managed to find a lender who gave the money, but after they returned the money wouldn't give them the collateral back. You know. It just the list goes on and on and on, and it just seems like Celsius had a lot of issues before the crypto crisis even started really

dropping the last couple of months. But like Anna said, that certainly did not help them dig out of this hole that they were already in. Yeah, and and and Celsius has been around for a while, right, it was founded in twenty seventeen, and so it's been through these winter periods before. Okay, how do you think that Celsius

is perceived in the industry. It's CEO, Alex Maschinsky has been known to accuse people of spreading food, you know, the cryptoactor acronym for fear uncertainty and doubt on Twitter, and also recently a former employee filed a lawsuit alleging that the whole business is a Ponzi scheme. So it's

got a bit of a reputation here as well. Absolutely it certainly does you know Celsius So Alex Maschinski used to do an am a with users about once a week, and essentially this was a lot of chest pumping, and you would get a lot of people sort of commenting or calling in a saying, oh, you know, I invested all of my life savings or all of my retirement

into Celsius. I believe in you guys. And of course, as we know, crypto is so volatile, all of the advisors say never invest your retirement money into something this volatile. So to begin with, I think it was a very dangerous place for people to put their money, as we are finding out now. And I think this weekly sessions where you know, Alex Maschinsky essentially rallied the troops. They might have created a bit of a false sense of safety for some of the users who invested their coins

into Celsius and Nana. This is like a proper industry problem, right, mission SKI isn't the first CEO that we've seen attack people on Twitter for saying their platforms bad or is doing something wrong, and then you know how it will come back to bite them. Yeah. Of course in crypto is a very Twitter driven industry, as we all know, and so that makes it a bit more transparent and

you can interact with big players directly. But then it also raises an issue that you have CEOs of companies that might be getting into trouble directly interacting with investors and giving them information that might or might not be true and making them want to invest right. So you'd probably not see CEOs of of other financial companies coming on Twitter and saying, hey, you know, give us your money, this is a great investment in some cases because you're

not allowed to. And and then as you're saying yes, of course they do, they do attack you back if you try to say something in a way it's somewhat cultish. I've had experiences when maybe you're trying to give them information or saying information that you've reported and you're you're pretty sure are of course you're sure it's true if you're reporting it, and that could help an investor make

more informed decisions. In a token that they hold or in something that they want to buy, and yet you get attacked as if you know you're it's personal to you,

and obviously to a reporter it's not personal. Anna You and I also worked on another story about Celsius, you know, in the interests of transparency here digging into a little deeper into the largest credits of US, which turns out to be linked to a little known London based hedge fund called Lantern Ventures, which has quite a few degrees of connection to Sam Bankman Free, the FTX co founder. How has he been a part of the crypto meltdown

so far? He's very much been at the center of it, not because he's gone bankrupt, his companies have been one of the biggest creditors, or in some cases we've seen him both owed money to a company and also been owed money from that company. So he's very much been a big player. And so it was quite surprising to find that even in this case he there was a connection. Right. Obviously there was a direct connection because Alameda, the sort of hedge fund that he founded was old money, was

one of the creditors of Celsius. But then there was also this fund who sort of no one, no one kind of recognized, and so I was surprising to find that the founders of this fund or the company that runs the fund were also sort of indirectly connected to him, and that the CEO was one of the co founders of Alameda, and that the many people that worked at the firm had worked at an organization where where Sam

had worked before. So there's this sort of big, long reach that he has and that is quite interesting to explore because it sort of highlights how the market is interconnected, and obviously the more interconnections you have, the more risk of contagions. Thank you both. We'll be right back. And Olga, you've been covering some bag Freed for quite a while. You've been speaking to him pretty much ever since he

first arrived on the scene. Why do you think it's important to be to be tracking that presence across the market and how do you kind of see it playing out of the minute? Is it what you expected to find when you first started talking to him? You know, it's interesting. So in the past, there have been well in a number of entities that have been very important in the crypto market and had deep pockets. They were say coin Base and Buying Ends and some bank Mont

Freeds companies and a number of others. What happened in recent months is that a number of companies have been affected by this following crypto prices actually point bas is one example, they've been impacted by the decline and retail trading and the sharp decline and their stock price. Now after we've seen this latest shakeout take place, we basically have a bit of a duopoly in the crypto markets.

You know, it's some bank Mont Freed and Binance, you know, are believed to be the big parties that have the cash for bailouts and for you know, expanding their network of business interests in this downturn, which is kind of what you want to do if you're able to. And so a lot of people are basically following this two now key very important players in this industry to see what kind of moves they're going to make, who they're gonna choose to save, who they're going to pass on.

They all of a sudden have a lot of power in this industry. Do you think that bankruptcy filings are going to become the go to option for businesses who are in need because if we think about what it means to be decentralized. A lot of what has gone on over the last few months has shown just how far away crypto is from achieving that dream. Often these companies are turning to the centralized authorities and the processes is to get them out of that. Um Anna, do

you have any thoughts on that. A bitcoin maximalist, this sort of confirms their ethos is that you should be your own bank, So you should definitely not give your money to Celsius to lend out, because it just confirms the whole point. But clearly sort of the industry was so much more than just bitcoin maximalism, and that what

it's been becoming for for many years. In a way, even though crypto wants to rein finance, it is it's not reinventing finance in in a better way, but it's just sort of repeating the mistakes, which is kind of taking on too much risk and possibly doing some of the things that were happening in the financial crash. But we're the new form of asset. I think the troubles that we are seeing and have seen them in the

last few months, they really related to centralized companies. I mean, they were in crypto, but they were centralized companies run by specific teams, you know, they were incorporated and so forth. What I think a lot of crypto enthusiasts and vision is they have this vision of decentralized finance where apps created their basically code that sits on a blockchain and it runs everything, and there are no centralized companies or entities running the whole thing, and it's more fair and

it's more efficient. In my opinion, this vision is still, of course to be realized, but we are very slowly inching towards it, and I think it's going to be a big deal and very transformative when it's achieved at some point, maybe a few years down the road. And there are a few examples of applications of the decentralized

finance already that are very successful. And one of the sort of takeaways from this crash for crypto die hearts is that this is perhaps a good model, you know, the decentralized finance model, because what we've seen in this downturn and this latest crashes that centralized companies can be

mismanaged and they can fail. But so far, at least all of the decentralized apps have held up and they're still around, even those apps that have been used heavily by some of the companies that are going out of business now and have declared bankruptcy, like Celsius for example. Can I just step in. I agree with what you're saying.

I just think sometimes what happens is that during a rally, even people that are in the crypto space and that are die hards sort of defy people are decentralized finance people, there seem to be less criticism of the centralized platforms

until the centralized platform crash. When everything is going well, everybody's friends and like everything is growing and everything is great, and then sort of the risks get over sort of shadowed, and then when new crisis hits and people say, well, we told you shouldn't have put your money on exchange that GD because they get hacked. You shouldn't have put

money there. So I think maybe what sort of a lesson that could be learning is here, is like to try to make sure that during rallies there's still a bit of sort of sense of self criticism of the industry, so that issues that are bubbling and that can be pretty evident are are highlighted or sort of enhounced by everyone before it gets taken too far. Thank you both,

it's been a pleasure to guest host today's episode. You can find more of Anna's work and Auga's reporting on the Bloomberg Terminal, on Bloomberg dot com and on Twitter at Anna Aurera and at Olga Career. On the next episode of Bloomberg Crypto, there's a perception that everything about crypto is novel and groundbreaking. The reality is a little more complex. There's lots of precedents, for example, for concepts like dows or decentralized autonomous organizations or what you might

have heard as initial coin offerings. This is particularly clear right now as crypto is going through its own version of a Beer Stearns moment, which all begs the question is D five really just inventing trad five with more complexity and a sprinkling of blockchain, or is their genuine novelty. Here for more on these questions, will have two very special guests, Bloomberg Opinion columnist Matt Levine and Bloomberg REPORTA f. Muyal Schen. I'm Stacy Marie Ishmael, and this is Bloomberg Crypto,

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