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6th January 2023 > > Fraudsters and regulation.


Lambasting the fraudsters and bemoaning the lack of regulation are two of our favourite topics here at CC towers.

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Curious Cryptos’ Commentary — Update on Celsius

I am forever in awe at the quality of work performed by the research team behind the CCC. They have an unerring ability to focus in on the key story of the day for the crypto world.

Right on cue, just hours after yesterday’s devastating critique of the business model of centralised crypto lender Celsius, comes the news that the founder and former CEO of Celsius, Alex Mashinsky, is being sued by New York’s attorney-general, Letitia James, for fraud.

Letitia explains:

“I’m suing the former CEO of cryptocurrency platform @CelsiusNetwork for defrauding investors out of billions of dollars. Alex Mashinsky lied to people about the risks of investing in Celsius, hid its deteriorating financial condition, and failed to register in New York.”

She continues:

“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin. The law is clear that making false and unsubstantiated promises and misleading investors is illegal. Today, we are taking action on behalf of thousands of New Yorkers who were defrauded by Mr. Mashinsky to recoup their losses.”

It has now come to light that Celsius made uncollateralised loans to two now bankrupt crypto organisations – Three Arrows Capital and FTX. These two highly leveraged entities were rotten to the core with mismanagement allied with a total failure to understand correlation risk, a schoolboy error of epic proportions.

The credit assessment process at Celsius clearly left a lot to be desired.

Curious Cryptos’ Commentary — The EU and crypto regulation

The EU has made great progress, and surprisingly sensible progress at that, in the regulation of the crypto industry. MiCA (Market in Crypto Assets) is a grown-up targeted piece of legislation that survived several misguided attempts to use it as cover for “banning” cryptos, a pointless ambition that would simply drive tax dollars to an alternative jurisdiction.

Now that the three pillars of the EU bureaucratic monolith – the European Parliament, the European Council, and the European Commission – have agreed the substance of this legislation I was hopeful we would soon see its implementation giving the crypto industry greater regulatory certainty, a most desirable outcome.

But it seems even I fail to appreciate just how slowly bureaucrats can work.

Despite complete agreement from every technocrat in the EU decision making process, MEPs have yet to vote on the proposal. There is little doubt it will gain overwhelming acceptance given the man-hours spent in developing the MiCA framework. But MEPs apparently have the final say.

Not wishing to rush into rubber-stamping MiCA, the delay in the vote by the European Parliament means that implementation of MiCA is now expected in 2024.

The incompetence of bureaucrats never fails to astound me.

And this delay gives opponents of the crypto revolution more opportunities to attempt to ambush MiCA.

Fabio Panetta, a member of the executive board of the ECB (European Central Bank) is often portrayed as a pantomime villain in these pages. True to form, though he has given his approval of MiCA, he now says it is not enough, and there is a need to go further.

He may be right about that as we have yet to see how effective MiCA is when put into practice, but I suspect his view of “going further” is at odds with mine.

But Panetta is actually largely free of blame, for all he is doing is repeating what he has been told to believe by his boss, Convicted Criminal Christine Lagarde, head of the ECB.

The attack line though is an interesting one, and has not been tried before:

“Regulation should acknowledge the speculative nature of unbacked cryptos and treat them as gambling activities. Vulnerable consumers should be protected through principles similar to those recommended by the European Commission for online gambling. They should be taxed in accordance with the costs they impose on society.”

Having failed to prosecute a case that rested on the supposed environmental implications of crypto mining, this attempt to portray crypto investing as equivalent to gambling is equally likely to backfire.

But I think I understand his motivation. You might accuse me of being a touch sensitive on the topic of CBDCs (Central Bank Digital Currencies) and the frightening implications for our personal privacy and liberty, but the phrase “unbacked cryptos” sounds highly suspicious to me.

Panetta goes on to confirm my fears.

He describes CBDCs as “a risk-free and dependable digital settlement asset”. Dependable that is until the relevant Central Bank unilaterally decides otherwise.

Laughingly he concludes that trust in cryptos will only be safeguarded by CBDCs.

He is an intelligent man, and presumably well-read on the crypto topic. CBDCs are not – and never will be – cryptos. He is either badly misinformed or is lying when he conflates the future success of cryptos with CBDCs. Incompetence or dishonesty are both good reasons in my book for concluding that someone is not up to the task in hand.

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