Major crypto lender files for bankruptcy

The filing for bankruptcy by the major crypto currency lender Celsius Network in New York on Wednesday has been characterised as crypto’s “Lehman Brothers moment.”

The demise of the US investment bank in September 2008 was the trigger for the global financial crisis which required massive intervention by the US government and the Federal Reserve, as well as international action, to prevent a complete meltdown.

Celsius Network CEO Alex Mashinsky at Web Summit 2021 in Lisbon, Portugal (Photo: Wikipedia/Web Summit)

The company had liabilities of $5.5 billion, most of them to Celsius users, and assets of $4.3 billion.

While the crisis in the crypto market is not on the scale of the 2008 breakdown, neither is it an isolated event without broader financial significance.

This is because, while the crypto market has been rightly regarded as a kind of Ponzi scheme, the collapse of Celsius and other crypto firms is the result of the tightening monetary policies of the Fed affecting all areas of the financial system.

In order to lure depositors, Celsius offered large rates of return on their money which it then lent to other crypto firms, using the rhetoric of the entire crypto world to present itself as a kind of rebellion against the banking system.

Back in 2020, as the crypto boom was taking off, Celsius CEO Alex Mashinsky issued video addresses in which he railed against the rigged financial system and greedy bankers, claiming to offer an alternative.

In a major article this week, the Financial Times (FT) recalled remarks he made during an interview last year. “There is a continuing squeeze of the 99 percent by the 1 percent to extract more profit,” he said. In a 2020 interview he claimed that Celsius was “actually safer than most banks.”

The bankruptcy filing told a very different story.

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