FT Cryptofinance: Celsius falls into bankruptcy and the future of crypto

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Hello and welcome to the first edition of the Financial Times Cryptofinance newsletter. My name is Scott Chipolina, digital asset reporter. I’m here every Friday to bring you the smarts you need about the digital finance industry.

I’ll take a look at the most important trends in crypto, introduce you to the rapidly changing regulatory landscape, detail how companies are using innovations like blockchain in their operations. them and provide you with insights from industry operators. Don’t expect too many updates on which coins are up or down this week – we’ll dive into the stories that matter most to investors.

Story of the Week: Celsius Turns From Crypto High Flyer To Bankruptcy Filer

Celsius’s fall from the top of the crypto industry before the US bankruptcy court highlights many of the most important challenges facing the digital finance industry as the era of easy money accelerates. Its growth came to an abrupt end.

The US-based crypto lender earlier this week filed for Chapter 11 bankruptcy protection when it disclosed a $1.2 billion loss in its balance sheet, caused by what chief executive Alex Mashinsky describes as “poor” investments and other “unforeseen” losses.

Celsius, founded in 2017, has become one of the most prominent companies in the crypto space by offering annual interest rates as high as 18%. It can provide these returns – which are almost unheard of in traditional finance – by placing risky bets on depositors’ money, as my colleagues Kadhim Shubber and Joshua Oliver have detailed. details in a must-read story this week. The strategy that allowed it to attract billions of dollars worth of capital during the crypto bull run was fueled in part by a race in yields stimulated by the pandemic-era stimulus programs of central bank.

The company’s rise, which took place almost without regulatory oversight, caught the eye of major investors. Canadian pension fund manager Caisse de Đépôt et put du Québec and WestCap, a fund founded by former Airbnb and Blackstone exec Laurence Tosi, led a round of fundraising in degrees Celsius in October and valued the group This is at $3 billion.

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

Less than a year later, Celsius blocked customers from withdrawing funds from its platform after cryptocurrency market auctions left their finances at a loss. Other crypto lenders such as Vauld, a group backed by Coinbase and investor Peter Thiel, have also blocked similar buybacks as the credit crunch in the digital asset market intensifies.

The woes for Celsius and its colleagues shed light on a host of issues that could define the trajectory of the digital finance industry. What responsibility should regulators have in protecting consumers using cryptocurrency platforms? Should crypto tokens be custodial like securities, commodities, or something else entirely? Should mainstream fund managers get their hands on crypto?

Meanwhile, the Lex column of FT shown that Celsius’s bankruptcy will raise important questions from attorneys, creditors and courts about how digital financial firms correctly operate.

Troubles in the crypto industry also come during a period of broader market turmoil. What will the rush of investors to abandon speculative assets mean for the digital finance industry at large and the thousands of crypto tokens currently circulating in the market?

I want to hear from you. What do you see as the most important issue and question in the digital finance sector today? Email me at [email protected].

Highlights of the week

  • Alan Howard, a media-shy hedge fund billionaire, is quietly building a digital asset empire and has become a main force during crypto ventures in the United States and Europe.

  • Cryptocurrency investors should treat the market crash as a “warning lesson” about putting money in risky assets that are unregulated and cannot be trusted. any kind of reliefEurope’s leading securities regulator has said.

  • Brokers that offer stock trading and cryptocurrency exchanges that sell digital tokens are improvement towards each other’s customers as enthusiasm has driven retail volumes to cool in trading.

  • FT columnist Jemima Kelly argues that Web3 is not about making the Internet fairer or less liable to exploitation by greedy fat cats – it really is. opposite. While we’re on that topic, make sure not to miss the FT’s Big Read on whether the Crypto Crash Derails the next web revolution.

  • Popular Irreplaceable Token Market OpenSea announced that it plans to cut its workforce by 20%, marking the latest step in very long line about the cryptocurrency layoffs.

Featured sound of the week

Financial Conduct Authority chief executive Nikhil Rathi said the UK and US are unlikely to accept China’s digital currency due to concerns about citizens’ privacy and data, FT Asia correspondent Europe Owen Walker reports. China is one of the world leaders in building a state-backed digital currency, so this development should be closely watched.

“There will be really important social questions about data privacy. So I would be surprised if our jurisdiction – or indeed [the US] – will be able to adopt the approach to citizens’ data privacy already adopted in the Chinese model. I think our citizens just have different expectations there. “

Data Mining

The flow of money through crypto mixers, tools that obscure the tracer of remittances that are usually publicly accessible on the digital ledgers that underpin cryptocurrencies, has grown rapidly this year. In the second quarter, $800 million in illicit funds were sent to these products, up 180% from the first three months of 2022, according to blockchain analytics platform Chainalysis. The rise highlights how crooks are turning to new tools to hide their tracks as law enforcement agencies become increasingly sophisticated in tracking funds on public blockchains.

It is also important to note that Chainalysis data shows that funds sent to the mixers are mainly coming from North Korea, proving that the country’s underground crypto economy is alive and well.

Quarterly Illegal Cash Flows (Millions) Column Graph Shows Increasing Use of Crypto Mixers in Shady Transactions

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