The Financial Times informs us that the CEO of Celsius, Alex Mashinsky, has sell his clients’ bitcoins just before the FED started raising rates. Serious mistake…
Mashinsky the crazy trader
Celsius was built by promising juicy returns on their clients’ cryptocurrency “deposits”. Too juicy…
In the bankruptcy filing this morning that the FT obtained, Mashinsky states that “Celsius’s assets had grown faster than its ability to invest them”.
According to people familiar with the case, the firm Celsius “found herself owing more return than she had been able to generate via her investments”.
So Celsius took more and more risks. Things started to get complicated when the US lender EquitiesFirst could not immediately return $500 million in bitcoins that Celsius had lent him.
Later, in September 2021, Celsius will invest its clients’ funds in the Grayscale Bitcoin Trust, the world’s largest BTC fund (GBTC). Celsius will lose 30% of its $400 million investment following the bearish reversal of bitcoin.
Faced with this loss, Mashinsky embarked on a flight forward by borrowing cryptocurrencies to cover his losses and try to remake himself.
According to the FT, Celsius has “used cryptocurrencies that he kept as collateral for his own loans to obtain stablecoins loans”. “These stablecoins will then be used to buy cryptocurrencies, always with a view to replacing the lost assets”.
Unfortunately, these arrangements obviously made Celsius vulnerable to another sharp fall in bitcoin. The risk is that customers will ask to recover their cryptocurrencies at the very moment when Celsius would be forced to allocate more capital to cover its stablecoins borrowings.
In January 2022, when the bitcoin decline was already well underway, the FT reports that Alex Mashinsky “gathers his investment team to tell them that he was going to adopt a trading strategy before the next meeting of the US Federal Reserve”.
Faced with the fall of the markets, the boss of Celsius pleaded that it was necessary to cover up. He was convinced that the FED’s monetary tightening would push cryptocurrencies a little deeper. During a phone call on January 21, the Friday before the Fed’s meeting, “Mashinsky will tell his investment team that the coming week would be the most defining of their careers”…
Put another way, Mashinsky wanted to try a poker trick by selling his clients’ BTC just before the FED meeting. He hoped that the rise in rates would cause bitcoin to collapse in order to buy back the lower BTC and use the difference to get afloat.
Not everything went according to plan. Although the Fed has confirmed its intention to raise rates at the next meeting, bitcoin has not flinched. On the contrary, it will jump in the weeks following the Fed meeting in January.
Van Etten, who joined the company in September 2021, will be packing his bags the following month, most likely due to his disagreement with Mashinsky and his poker move which will prove disastrous. More than 60,000 BTC would have been lost in this extremely risky fiasco.
Celsius’s hundreds of thousands of customers are now facing significant losses. The hole is currently at $1.2 billion.
Nevertheless, according to the law firm Kirkland & Ellis, which has examined the company’s accounts, the loss would be closer to $ 3 billion…
This is the story of a man who believed he could create the first cryptocurrency bank by promising gravity-defying returns.
Why take so many risks to glean a few percent return when bitcoin is raking in more than 100% without doing anything? Hodl your keys!
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Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic and libertarian prisms.