When the Temperature Dropped to Zero: Inside Celsius Network's $20 Billion Meltdown

Episode Description

This episode explores the dramatic collapse of Celsius Network, one of the largest cryptocurrency lending platforms, and what it means for investors who trusted the platform with their digital assets. We break down the warning signs, the aftermath, and crucial lessons for anyone involved in cryptocurrency investments.

Key Points Covered

• The Cryptocurrency Scam Landscape
  • Widespread crypto scams targeting investors through social media and unsolicited emails
  • Fake investment schemes promising doubled returns in short timeframes
  • The difference between outright scams and legitimate platforms that fail
• Celsius Network's Collapse
  • Withdrawal halts affecting thousands of customers for nearly a month
  • Platform's claim of "stabilizing liquidity" - code for insufficient funds
  • Victims locked out of six-figure cryptocurrency holdings
• The Root Causes
  • Under-capitalization of legitimate cryptocurrency platforms
  • Heavy borrowing and leverage against crypto holdings
  • Margin calls triggered by declining cryptocurrency prices
  • Credit crunch affecting overleveraged companies
• Red Flags Investors Missed
  • High interest rates (sometimes 20%) as warning signs
  • False sense of security from company size and user base
  • Lack of traditional banking oversight (no FDIC protection)
  • No SEC regulations like traditional banks (Chase, Wells Fargo)
• The Bankruptcy Process
  • Celsius hiring attorneys and consultants for restructuring/bankruptcy
  • Comparison to other major corporate failures
  • The uncertain future for locked investor funds
• Lessons for Crypto Investors
  • Importance of diversification across asset types
  • Understanding that company size doesn't guarantee safety
  • The risks of putting all investments in volatile cryptocurrency
  • Benefits of taking profits and maintaining cash reserves
• Market Context
  • Cryptocurrency's massive price swings and profit potential
  • The dangers of leverage in a declining market
  • How margin calls can destroy even legitimate platforms

Key Takeaway

Even legitimate cryptocurrency platforms can fail due to overleveraging and market volatility, making diversification and risk management essential for any crypto investor.

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Look there's been a lot of talk about cryptocurrency bitcoin as an investment and money floating around back and forth between all these different investments and even outside of a pure investment there's been a lot of scams people who have been scammed and defrauded out of their money for fake crypto investments a lot of this comes from social media a lot of it comes from unsolicited emails to a person claiming that they have this great investment you put money in and you'll double your money in a month or whatever it is and purportedly through cryptocurrency.

Even when there was a legitimate cryptocurrency or digital currency platform some of these are turning out to be under capitalized the most common one is celsius and that's been locked up withdrawals have been blocked so if you have money in there you can't take it out it's not the only one there's been some other ones that have done this at the time of this writing it's been almost a month and they halted all customer withdrawals.

Most people are wondering if they ever see their money again if you're halting withdrawals it means that you don't have enough money to give out to everybody and the question is where did the money go if people put money in to buy crypto that digital currency should be existing somewhere unless some of the money went to pay expenses of that company at this point everything's a ledge there's no criminal referrals that we know of according to one of the victims she said she had you know six figures worth of digital currency tied up in this account and they can't take it out and the reason they claimed is to stabilize liquidity.

What that means that's a code word for we got no money and we can't give it to you because not enough to go around and here's the key this is a key to to you know do diligence on investments and also to vet out potential losses it's such a huge company and there's so many people that i felt somewhere in the back of my head that i'm not going to lose everything.

The size of the company and how many people are there don't matter there's been huge companies that have gone bankrupt we just saw the nria real estate investment company go bankrupt 600 and something billion dollars of investor cash a lot of this has to do with debt and leverage some of these companies borrowed a lot against their crypto and when the crypto is declining and the prices are going down there's a credit crunch when you borrow against your crypto holdings and the underlying value goes down you might get a margin call from your lender you might not be able to borrow more.

These companies have sprung up to offer services that seem like they're banking paying interest on deposits making loans and offering high interest rates sometimes twenty percent anytime you see a high interest rate that's a red flag and it may be that these companies weren't able to pay all their expenses running a company is expensive running a bank is even more expensive and it looks like it's traditional finance but there's no oversight meaning that they don't have fdic they don't have sec regulations monitoring it like they monitor chase or wells fargo as an actual bank.

It looks like this platform releases considering bankruptcy they've hired attorneys and consultants to look at restructuring our bankruptcy a lot of people have lost money some people were uh saving money to buy a house hopefully the investors had some type of diversification so all their money wasn't encrypted.
Look there was a big upside you know when crypto was in five or six thousand dollar range if you had you know bought two or three then and now it was at 50 you could have hundreds of thousands of dollars in profit as long as you were diversified and even if it went down you sold some and had some money in other types of assets stocks real estate cash but if you had all your money in crypto as a wildly fluctuating asset with big promises you may be in rough shape even if you weren't flat out scammed if the crypto market is crashing and the leverage is creating a margin call you could be in big trouble.