- Celsius Network LLC boomed with over $12 billion in deposits after offering higher interest rates than banks.
- The report showed that Celsius issued numerous large crypto loans with little collateral or support in the event of bulk withdrawals.
- They rewarded lenders with annual returns of 18.6% on some cryptocurrencies and 7.1% on stablecoins.
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Under CEO Alex Mashinsky, Celsius Network LLC boomed with more than $12 billion in deposits from lenders after rolling out a less risky investment package with higher interest rates than traditional banks.
However, investor documents from 2021 reviewed by The Wall Street Journal (WSJ) revealed that Celsius has issued numerous large crypto loans with little collateral or support in the event of mass withdrawals. Its investment portfolio includes $19 billion in assets and about $1 billion in equity before raising new funds last year. According to data from FactSet, the average asset-to-equity ratio of all North American banks in the S&P 1500 Composite Index was 9:1, about half Celsius.
Economist Eric Budish of Chicago Business School believes the 19-1 ratio is exceptionally high for an unregulated company with assets in crypto. He noted that large banks often have ratios close to these numbers but have much more stable support and access to central bank lending for cash.
Celsius is now struggling to survive and is seeking advice on a possible bankruptcy filing. Previously, investors were given forecasts that deposits would surpass $108 billion and revenues would reach $6.6 billion in 2023. It forecasts earnings of $2.7 billion by 2023, more than six times its earnings forecast for 2021.
Celsius rewarded lenders with annual returns of 18.6% on some cryptocurrencies and 7.1% on stablecoins. While banks like overcollateralized loans, Celsius only requires an average of 50% collateral from borrowers, according to its investor filing. Celsius’s investments included its bitcoin mining operation and a futures arbitrage practice. But the falling bitcoin price has impacted the bottom line of bitcoin miners over the past few months.
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