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5th January 2023 > > Celsius.

Updated: Jan 6, 2023

tl;dr

The CCC has long warned against depositing cryptos into centralised passive income earning accounts.


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A very gentle first week of 2023 across the board though this year’s first meme coin Bonk Inu has returned over 2,200% gains since launch on Christmas day. Though Shiba Inu and BabyDoge have surprised us all with their longevity (disclosure: the CCC treasury owns some BabyDoge) I remain unconvinced there is room for a third.


Occasional Series – A tale of fiction and fantasy to rival the Lord of the Rings

The CCC has long been critical of the charade, the façade, that claims that central banks are independent of their government masters.


For all his faults, Rishi Sunak, Prime Minister of the UK, has finally laid that lie to rest.


In his speech yesterday he pledged to halve the rate of inflation in the UK by the end of 2023.

Ignoring the hubris (some may find it charming that Sunak believes he has control over global commodity prices, I just find it annoying) for a moment, it becomes clear he has forgotten that the mandate for the Bank of England’s independence is based solely on the rate of inflation.


Its secondary mandate – financial stability – brooks no support with respect to independence, so those pedants at the back of the class can just quieten down now.


If a government has truly outsourced monetary policy to the central bank, its only input to inflation targeting is to set the target over the long term. Sunak has destroyed the last vestiges of that concept.


Gordon Brown – a trailblazer for the recent trend of PMs who have not endured a democratic process to land the top job – was applauded by all sides when he announced the fiction that the Bank of England was to become independent. In theory, it seemed such a good idea that even I was fooled at the time, but we are all wiser now.


Will Rishi Sunak be lauded for drawing back the veil on that fiction, allowing a proper grown-up discussion about monetary policy and its limitations and failings? Will that conversation allow for the role and merits of cryptos in reigning back the frontiers of intrusive government?

Let us hope so.


Curious Cryptos’ Commentary — Celsius and “Earn” accounts

For the past year or more the CCC has been warning regular readers to avoid depositing cryptos or stablecoins on centralised platforms to gain passive income. Though deposit rates of 20% or more looked superficially attractive, my view as detailed in these very pages on 2nd November 2021, was that unless the rates were more than 100% then it seemed clear to me that the rewards on offer did not match the risk taken.


And so, it has proved.


Centralised crypto lender Celsius Network filed for bankruptcy on July 13th, 2022. Having shown earlier signs of financial distress caused by liquidity issues (that’s leverage and correlation rearing their ugly heads once more) the implosion of LUNA and the collapse of the Terra ecosystem took down Celsius due to contagion.


Celsius promoted a product known as “Earn” aimed at attracting depositors’ crypto funds in exchange for passive income. Celsius’ business model was to take those funds, leverage them, and loan them out. This is not so dissimilar to the fractional-reserve banking model, though the latter is practised by regulated entities that come with a government banked guarantee of funds up to maximum limit.


At the time of Celsius’ bankruptcy, the Earn program was sitting on $4.2 billion of customer funds which have been locked away, whilst investors have been unable to access or withdraw those funds.


Yesterday in a court hearing a Judge pronounced that due to the terms and conditions of the Earn program those funds do not belong to the depositors but to Celsius, and by extension the creditors of Celsius.


Depositors meanwhile are relegated from being a high-ranking creditor with direct ownership of those funds to being on a par with all other unsecured creditors.


What does this mean in practice?


If you had deposited your crypto funds into the Celsius Earn program for a 20% return you will now receive probably just cents on the dollar for the value of your funds, and you will receive payment in several years’ time at best.


I feel sorry for those who have lost billions of dollars’ worth of cryptos through naivety and ignorance, but I am very pleased that the CCC community was forewarned and did not make the same mistake.

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