The Celcius news over the weekend has sent the price of bitcoin sharply lower. The low price reached $22,600. That was just above the 200 week moving average at $22,368.26.
Admittedly, I wasn’t all that familiar with Celsius or what they do. However after watching a video on CNBC April 13, 2022, have a little more knowledge.
CEO of Celcius speaks on his firms business
It seems that Celsius gives crypto holders a very aggressive “Earned Reward” (which is really interest on their bitcoin loan) for pledging their crypto currencies with the firm. They in turn pool those crypto assets and lend them out to other institutions who need them. Those institutions in turn pays Celsius a rate which is above the rate that Celsius pays their clients for giving them their crypto assets.
The Celsius CEO says that they are doing what banks don’t do. That is, give back most of what they earn from lending out the securities to the 3rd parties. How kind.
He says, as a result, they have a “delta neutral” business.
The question is, when they lend out the customers pledged crypto to whoever out there in the digital world, what happens to those crypto assets? Where do they go? How do they get them back when the client wants it back? If the institution who needs the bitcoin or whatever digital currency so much that they are willing to pay above market rates of say 7% or so, what are they doing with them? Are they just trading those positions hoping to make 15% on the volatility? Are they shuffling the spaghetti to someone else who needs them and pays 7.20%. Is it used in some sort of laundering operation where the 7% does not even matter?
No one knows.
However, it seems Celcius has a bunch of clients who are asking for their bitcoin back and who want the 7% on their loan as well. Celcius can’t deliver because I assume they can’t get the bitcoin back from the institution/retail client that they lent them to.
The house of cards is teetering.
That is how I read it.
So where are the regulators?
According to the CEO, the regulators call every day and ask them questions about things like “know your client”, oligarch money, and money laundering, etc and they say “Yes we are all good. We are a good actor.”.
The fact is, there is no regulation and although they may say they are a good actor, are they really?
What caught my attention from what the CEO said went something like this.
- There are 25% of the people in the US who now own crypto. If regulators try to regulate it excessively, they will not get reelected.
This game is a high stakes poker game. Celcius went all in, taking bitcoin, paying a rate higher than market rates, lending that bitcoin out for a higher rate and booking the difference. There is no regulators that track that loan, monitoring the firms capital, management of anti money laundering practices or the line of loans that are subsequently made outside of the Celcius initial transaction. Celcius say they have collateral of 300% from retail (300%?), and undercollateralized vs the institutions who are probably the biggest and most clients.
Now the powers that be, may prop up the bitcoin market to try and calm it down as it is truly in their best interest to keep the beast alive, but I certainly continue to smell a rat.