Since I write my articles weeks in advance, you would be reading this long after the failure of the Crypto banking firm Celsius on June 12. The bankruptcy was filed on July 13.
Customers were owed $4.7 billion and they had $170 million of cash they could pay. While the 1.7 million customers had on deposit about $11.7 billion, there was near ZERO money at Celsius.
The CEO of Celsius, Alex Mashinsky, is quoted as saying, “The banks have abused their power.”
Celsius would pay 9% on cryptocurrencies versus the 1% banks paid on dollar deposits. The banks would charge 4-16% or more depending on the type of loan, like a mortgage versus a credit card.
One profit center for banks comes from the spread between what they pay the depositor versus what they charge the borrower.
Guess what? Unless a business makes a profit it will not stay in business.
It doesn’t matter if you manufacture widgets, or provide coaching services.
Mashinsky was playing with fire. As the value of cryptocurrencies fell his company became a Ponzi scheme. He could not pay the 9% interest except by paying depositors money from the new funds he was raising.
Forget about the Super Bowl commercials where movie stars promoted investing in cryptocurrencies. There is no government oversight on the firms that sell or hold crypto investments like there are for the banks or the stock market.
While Mashinsky strongly disagrees with the allegations, tell that to 1.7 million people who have no access to their crypto to pay bills.
If you invest in cryptocurrencies please educate yourself and make sure it is safe where you store it.
To Your Prosperity,
Rennie
