A new report from the Financial Times has shed more light on the demise of crypto lending company Celsius Network. The company founded by Alex Mashinsky was hit by the downturn in the industry and had to stop all activities, which negatively affected its customers, and filed for bankruptcy.
The report claims Mashinsky adopted the company’s trading strategy back in January 2022. At that time, the price of Bitcoin was hovering around $35,000-$40,000 and the crypto market came out of a major downtrend to find support at these levels.
The crypto market traded sideways and range-bound for over a month, with Bitcoin bottoming in the mid-$30,000s area. Aware of the company’s financial health and trying to recoup its losses, Mashinsky was ready to place a significant bet on the price of Bitcoin, according to the report.
In January, the US Federal Reserve (Fed) was on the verge of announcing changes in monetary policy to curb inflation. The financial institution hinted at a rate hike regime with a reduction in its balance sheet.
Mashinsky was betting that the crypto market would trend lower based on these announcements. So he sold “hundreds of millions of dollars” worth of bitcoin expecting to buy it back at a discount, but the market moved in the opposite direction.
According to the Financial Times, Celsius was forced to buy its crypto holdings at a loss as BTC and other assets rallied. The sector eventually posted significant losses, but Mashinsky and his team made incorrect assumptions about the timing of the crypto crash, the report claims, citing several people familiar with the matter:
He ordered dealers to massively trade the book for bad information. He threw huge blocks of bitcoin around.
Celsius has lost billions in crypto trading these products
Mashinksy’s involvement in its trading division has created conflict among employees, according to the Financial Times. The company’s former chief investment officer (CIO), Frank van Etten, questioned Mashinsky’s trading and involvement in investment decisions.
The manager left the company in February 2022, most likely due to his falling out with Mashinsky. The Financial Times claims that two days passed between Celsius selling Bitcoin and buying it again at a loss.
If the company had waited longer, it could have benefited from the crypto market crash, but as another person familiar with the matter said, Celsius acted on guesswork:
It wasn’t an irrational thought. There was a lot of speculation (…).
According to the report, Celsius had already suffered losses from 2021. As of September 2021, Celsius held over 11 million shares, or $400 million, in the Grayscale Bitcoin Trust (GBTC).
The investment product traded at a premium compared to the spot price of BTC. This trend reversed and GBTC started trading at a discount from Bitcoin.
Mashinsky was offered a deal to mitigate their losses, but passed it on expecting GBTC to reclaim their bounty. The company’s losses were exacerbated by this decision and total over $100 million.
At the time of writing, Bitcoin (BTC) price is trading at $23,800 with sideways movement over the past week.
BTC price is moving sideways on the 4-hour chart. Source: BTCUSDT trade view
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