Stay Away From Cryptocurrency
Cryptocurrency is a bad idea, and any serious investor should avoid it - how two crypto firms stole billions from customers.
For those who still are considering dabbling into the world of digital coins, allow me to scare the hell of out you in an effort to dissuade you from ever doing so.
Celsius and Voyager Digital are both cryptocurrency exchange companies that loan people real money (aka fiat currency) in exchange for them parking their precious digital currencies onto company-controlled digital servers.
New Jersey-based Celsius Network LLC, a significant player in cryptocurrency lending, filed for bankruptcy on July 13, 2022, in the Southern District of New York, a mere one month after blocking all customer withdrawals. This occurred one week after the bankruptcy filing of cryptocurrency competitor, Voyager Digital Holdings Inc.
Interestingly enough, both companies filed in the exact same court, and both have locked up literally billions of dollars worth of assets belonging to their customers.
Celsius was founded in 2017 by famed and self-righteous tech entrepreneur Alex Mashinsky, serial angel investor S. Daniel Leon, and some guy who goes by the name of “Nuke” Goldstein.
Celsius, one of the world’s largest global cryptocurrency platforms, has positioned itself as a digital platform where customers can “buy, swap, earn, borrow and send crypto — all in one app, with zero fees.” In short, Celsius was a darling of the blockchain world and promised to finally deliver the revolutionary experience that so many crypto enthusiasts have been eagerly anticipating.
Unfortunately for the customers of Celsius, the company suddenly froze all customer withdrawals and lending activities, including for corporate customers, and subsequently went belly up.
Why?
Celsius was officially launched in 2018 and managed to quickly open $50 million worth of customer accounts. By May of 2019, customers had transferred over $200 million into their Celsius accounts; less than two years later, that number had grown to more than $10 billion.
As a result of this insane growth, in May of 2022, Celsius raised an additional $690 million, at a company valuation of $3 billion.
If this seems fast to you, it’s because it’s almost unheard of and defies the very laws of financial physics.
So why did Celsius grow so fast?
The primary reason is that Celsius claimed to have solved a major problem for cryptocurrency enthusiasts — liquidity.
Despite many creative attempts at making it more liquid, cryptocurrency has remained very difficult to exchange with other assets and fiat currencies. The founders of Celsius believed that crypto asset holders needed a way to convert their cryptocurrency assets into useable currency, aka real money, and that the best way to do this was to set up a platform where crypto users and investors could find each other and make exchanges.
Essentially, Celsius wanted to be an online market exchange.
While that model seemed neat enough, the founders of Celsius wanted more, and so they figured that they could entice crypto users who would jump at the chance to generate yields off their existing holdings, similar to how a savings account at a bank works.
Simply put, people with Celsius accounts could transfer their crypto assets to other Celsius users in exchange for fiat currency, or (and this is a big or), they could lend their crypto assets directly to Celsius itself for yearly interest.
Got all that?
To sweeten the deal, customers could opt to have Celsius pay the interest in other cryptocurrencies such as Bitcoin or Etherium. When customers chose this interest-generating option, they would receive CEL tokens, which if you haven’t already figured out, stands for “Celsius.”
I know what you’re asking yourself:
“So could users exchange the CEL Tokens on other exchanges?”
And yes, if that’s what you were wondering, they could! There was/is, indeed, a secondary market for CEL tokens.
Now, if you’re thinking to yourself:
“But that’s crazy because then the value of CEL could be affected by outside market influences so my interest won’t be guaranteed.”
…then you obviously paid attention in kindergarten.
Unfortunately, the cryptocurrency world is loaded with people who subscribe to the rocket-ship-moon-emoji culture, and so they tend to jump at any creative ideas that promise to squeeze a bit more value out of something that doesn’t actually exist in the first place.
It gets worse…
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