Tag: Celsius

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Crypto News Regulation

California Regulator Investigates ‘Multiple’ Crypto Lenders for Inadequate Disclosures

California’s Department of Financial Protection and Innovation (DFPI) has announced it is “actively investigating” crypto lenders offering crypto interest accounts.

Multiple US-based lenders face investigation after indefinitely halting transfers and withdrawals between user accounts.

Targeted Companies Fail to Disclose Deposit-Related Risks

While none of these lending companies has been named, the regulator has hinted that those offering interest-bearing crypto-asset accounts, and service providers that have failed to adequately disclose deposit-related risks, will be a focus:

The Department warns California consumers and investors that many crypto-interest account providers may not have adequately disclosed risks customers face when they deposit crypto assets onto these platforms.

California Department of Financial Protection and Innovation

In the months leading up to the regulator’s decision, several prominent crypto lenders – notably Celsius – have frozen withdrawals and transfers. Behind these freezes is the liquidity crisis kickstarted by the recent and intense market downturn, which saw bitcoin fall below US$20,000 multiple times in June alone.

The California regulator’s decision to mount its investigation also comes after public comments from politicians and other regulators cautioning consumers over the risks of crypto lending.

Crypto Lenders a Hot Topic

Crypto lenders have been the talk of the town in recent times. Last month, crypto services business Nexo sought to purchase “qualifying” assets from rival crypto lender Celsius. This followed perceptions of Celsius’ impending insolvency as it froze user withdrawals and transfers over “extreme market conditions”.

Earlier this month, crypto lender BlockFi signed a contract with FTX US, a division of Sam Bankman-Fried’s crypto exchange. The partnership would see FTX increase its credit facility with BlockFi and provide an opportunity for FTX to potentially acquire the struggling lender. BlockFi co-founder Zac Prince stated that the deal was valued at up to US$680 million, with an additional US$400 million revolving credit facility.

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Banking Celsius Crypto News

Ailing Crypto Lender ‘Celsius’ Found to Have Double the Traditional Banking Risk

With an alleged assets-to-equity ratio near double that of the average US bank in late 2021, crypto lender Celsius had taken on far more risk than it had previously publicly stated and is now seeking to file for bankruptcy.

CEO Plays Fast and Loose with the Truth

Celsius CEO Alex Mashinsky seems to have been omitting the truth from multiple past statements that his company was not “taking a tremendous risk”. This comes as The Wall Street Journal uncovers evidence illustrating that Celsius had effectively doubled the risk profile of the average American bank.

All North American banks in the S&P 1500 Composite index have a median assets-to-equity ratio of close to 9:1. Information uncovered by the WSJ found that Celsius had US$19 billion of assets and approximately US$1 billion of equity just before October 2021.

This wasn’t the only discovery. Investor documents detailed that Celsius had sold undercollateralised loans in the past, which required business borrowers to post approximately 50 percent collateral for their loans. It is alleged that Celsius then used the collateral from these loans to borrow more:

With industry regulators typically looking at the assets-to-equity ratio as an indicator of risk, economist Eric Budish from the University of Chicago has described the Celsius ratio as “a risky structure”. Budish also stated that “it strikes [me] as diversified in the same way that portfolios of mortgages were diversified in 2006 … it was all housing – here, it’s all crypto.”

In October 2021, Celsius had been offering retail investors the chance to earn yields of up to 18.6 percent on deposited crypto assets. The lender had initially projected that deposits would exceed US$108 billion in 2023. However, this year’s industry lows have hit Celsius hard, with the company now considering filing for bankruptcy.

Celsius’ Recent Raft of Troubles

June was a disappointing month for Celsius with its native token (CEL) falling nearly 70 percent following the June 13 announcement that it would pause all withdrawals to “stabilise liquidity”. However, prior to this declaration, it is rumoured that Celsius had quickly transferred US$320 million in crypto to the Bahamian exchange FTX.

This presumed one-way ticket to insolvency also encouraged crypto services business Nexo to come forward and offer to buy Celsius’ “qualifying” assets. Nexo was believed to be interested in Celsius’ collateralised loan portfolio, yet it has since been reported that no prices were disclosed.

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Celsius Crypto News Regulation

Crypto Lender Celsius Halts Interest Accounts for Retail Investors Amid Regulations

Effective April 15, non-accredited US retail investors will no longer be paid rewards on any new deposits into Celsius interest accounts. The news comes in a statement from Celsius, which also notes that these rules will not impact customers outside the US.

Celsius Prioritises Regulation

The move by Celsius, a leader in centralised finance (CeFi), sees it fall into line with crypto regulations. From April 15, only accredited investors will be able to receive rewards and add new assets to the company’s Earn platform.

The update only applies in the US, and to be considered “accredited” an investor must have a net worth greater than US$1 million or a minimum annual income of $200,000. After April 15, those who aren’t accredited will have their coins held in custody, meaning they can still swap, borrow and transfer, but cannot earn interest.

As we previously have acknowledged, Celsius has been working closely with regulators around the world. It is our intention to be as transparent with our community as possible.

Celsius custody solution statement

Any US non-accredited Celsius users who were intending to use their crypto as loan collateral prior to April 15 will have their assets returned to their account on completion of the loan.

Other Offers and Rates

In March, Crypto.com slashed its return rates on token deposits, its second cut in a month. More recently, digital asset exchange Zipmex launched its ZipUp+ program, which offers Aussies very attractive yield returns. Zipmex is one of the major regulated Australian exchanges and may become even more popular with this new offer as the project allows interest of up to 10 percent APY without a lock-in period.