The Financial Times informs us that the CEO of Celsius, Alex Mashinsky, has sold its customers’ bitcoins just before the FED started raising rates. Big mistake…
mashinsky the mad trader
Celsius was built by promising juicy returns on their clients’ cryptocurrency “deposits”. Too juicy…
In the bankruptcy filing that Celsius the FT procured, Mashinsky states that “Celsius’ assets had grown faster than its ability to invest them.”
According to people familiar with the matter, the firm Celsius “found itself owing more returns than it had been able to generate through its investments”.
Celsius therefore took more and more risks. Things started to get complicated when the American lender EquitiesFirst was unable to immediately return the $500 million in bitcoins that Celsius lent it.
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 bitcoin reversal.
Faced with this loss, Mashinsky embarked on a headlong rush by borrowing cryptocurrencies to cover his losses and try to recover.
According to the FT, Celsius has “used cryptocurrency he kept as collateral for his own loans to obtain loans from stablecoins”. “These stablecoins will then be used to buy cryptocurrencies, always with a view to replacing lost assets”.
Unfortunately, these arrangements obviously made Celsius vulnerable to another sharp drop in bitcoin. The risk being that clients demand their cryptocurrencies back just when Celsius would be forced to allocate more capital to cover its stablecoin borrowings.
In January 2022, when bitcoin’s decline was already well underway, the FT reports that Alex Mashinsky “brought his investment team together to tell them he was going to adopt a trading strategy before the next meeting of the US Federal Reserve”.
Faced with the fall in the markets, the boss of Celsius pleaded that he had to cover himself. He was convinced that the monetary tightening of the FED would push cryptocurrencies a little more. In a phone call on Jan. 21, the Friday before the Fed meeting, “Mashinsky will tell his investment team that the coming week will be the most defining week of their careers”…
In other words, Mashinsky wanted to try a gamble by selling his clients’ BTCs just before the FED meeting. He hoped that the rate hike would crash bitcoin in order to buy back the lower BTCs and use the difference to get back on its feet.
Not everything went as planned. Although the Fed confirmed its intention to raise rates at the next meeting, bitcoin did not falter. On the contrary, it will jump in the weeks following the January Fed meeting.
Van Etten, who had 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 gamble which will prove disastrous. Over 60,000 BTC was reportedly lost in this extremely risky fiasco.
Celsius’s hundreds of thousands of customers now face significant losses. The hole is currently at $1.2 billion.
Nevertheless, according to the Kirkland & Ellis law firm, which has gone through the company’s accounts, the loss would be closer to 3 billion dollars…
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 reaps more than 100% without doing anything? Hodl your keys!
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