FT Cryptofinance: Celsius’s fall into bankruptcy and the future of crypto

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We are pleased to welcome you to the first edition of Financial Times Cryptofinance newsletter. Scott Chipolina is the digital assets correspondent. I’ll be here every Friday bringing you the intelligence you need on the digital finance industry.

I’ll be examining the most important trends in crypto, briefing you on the fast-moving regulatory landscape, detailing how companies are using innovations such as blockchain in their operations and bringing you insights from industry executives. Don’t expect too many updates on which coins are up or down this week — we’re going to dig deep on the stories that matter most to investors.

Story of the Week: Celsius goes from crypto high flyer into bankruptcy petitioner

Celsius’s fall from the heights of the crypto industry to US bankruptcy court highlights many of the most important challenges the digital finance industry faces as the era of easy money that propelled its growth comes to an abrupt end.

The US-based crypto lender earlier this week filed for Chapter 11 bankruptcy protection as it revealed a $1.2bn hole in its balance sheet, caused by what chief executive Alex Mashinsky described as “poor” investments and other “unanticipated” losses.

Celsius was established in 2017 and became one of the most well-known crypto firms by offering an annualised interest rate as high as 18%. It was able to offer these yields — which are almost unheard of in traditional finance — by making risky bets with its depositors’ money, as my colleagues Kadhim Shubber and Joshua Oliver detailed in A must-read this week. The strategy allowed it to pull in billions of dollars’ worth of inflows during the crypto bull run that was part-fuelled by the race for yield ignited by central banks’ pandemic-era stimulus programmes.

The company’s rise to prominence, which took place with almost no supervision from regulators, caught the eye of major investors. Canadian pension fund manager Caisse de dépôt et placement du Québec and WestCap, a fund set up by former Airbnb and Blackstone executive Laurence Tosi, led a fundraising round in Celsius in October that valued the group at $3bn. 

Alexandre Synnett, chief technology officer at CDPQ, told the Financial Times at the time that the investment signalled “the conviction that we have is around the blockchain technology”. 

Celsius made it impossible for customers to withdraw funds from its platform one year later following financial troubles caused by the crypto market. As the credit crisis in digital asset markets intensifies, other crypto lenders like Vauld, which is backed by Peter Thiel and Coinbase, have also blocked redemptions.

Celsius’s woes and those of its peers highlight a number of issues that could impact the future of digital finance. How much responsibility should regulators bear for protecting users of crypto platforms? Crypto tokens should be regulated in the same way as commodities or securities. Can mainstream fund managers be tempted to try crypto?

The FT’s Lex column, meanwhile, Points out that Celsius’s bankruptcy will raise important questions from lawyers, creditors and the courts on how exactly digital finance companies operate.

The market turmoil is also causing problems in the crypto sector. What will investors’ rush away from speculative assets mean for the digital finance industry at large, and the thousands of crypto tokens currently circulating on the market?

I’d like to hear from you. What are your top digital finance questions and issues? Email me at scott.chipolina@ft.com

The week’s highlights

  • Alan Howard is a media-shy hedge funds billionaire who quietly built a digital assets empire. Major forceThe process involves crypto venture capital both in the US as well as Europe.

  • Crypto investors should take the market crash as a “cautionary lesson” about putting money into risky unregulated assets and cannot count on Any type of bailout, Europe’s top securities regulator has said.

  • Brokers that offer share trading and crypto-exchanges for digital tokens. Making advances on each other’s customers as the fervour that propelled retail trading volumes into trading cools.

  • FT columnist Jemima Kelly argues that Web3 is not about making the internet fairer or less liable to exploitation by greedy fat cats — it’s actually It’s the exact opposite. While we’re on that subject, make sure not to miss the FT’s Big Read on whether the crypto crash will derail the Next web revolution.

  • Popular non-fungible token marketplace OpenSea AnnouncementIt announced that it will reduce its workforce by 20%, the latest in a trend. Long lineThere have been many lay-offs in crypto.

Sound bites of the Week

Financial Conduct Authority chief executive Nikhil Rathi said the UK and US are unlikely to be able to accept China’s digital currency over concerns about privacy and citizens’ data, FT European banking correspondent Owen Walker reports. China is one of the world’s leaders in building a state-backed digital currency, so it’s worth keeping a close eye on how this develops.

“There are going to be really significant societal questions of data privacy. So I would be surprised if our jurisdiction — or indeed [the US] — would be able to adopt an approach to citizens’ data privacy that has been adopted in the Chinese model. I think our citizens just have different expectations there.”

Data Mining

This year, the flow of funds through crypto mixers has increased rapidly. These tools hide the track of transfers and are usually visible on the digital ledgers that support cryptocurrencies. According to Chainalysis, the second quarter saw $800mn worth of illicit funds being sent to these products. This is 180 percent more than the first three months in 2022. As law enforcement authorities become more skilled at tracking money on public blockchains, this increase shows how criminals are finding new ways to hide their tracks.

It’s also worth noting that Chainalysis’s data found the source of funds sent to mixers is overwhelmingly coming from North Korea, demonstrating the country’s underground crypto economy is alive and well.

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