MY CRYPTO WAS STOLEN | Why Celsius REALLY Collapsed

Foreign guys, it's Graham here. So, I don't think this is a video that anyone wants to make, and I've been holding off from talking about this while we wait for any new developments. But I think enough time has passed to share my thoughts about what's going on and hopefully come to a resolution after the crypto platform Celsius disabled withdrawals and locked away more than 11 billion dollars of assets, with the likelihood that its depositors will never see that money returned.

So here's what you need to know: why the situation is quickly becoming a huge problem and how the entire market is at risk of irresponsible loans that need to come to an end sooner than later. All of that and more on this episode of everything that Gary Gensler hates about cryptocurrency.

Okay, no, but seriously, before we go into the video, if you appreciate the complete transparency along with the willingness to risk my own money to be able to talk about every platform that's out there with first-hand experience, it would mean a lot to me if you either hit the like button or subscribed if you want to see how this plays out. So, thank you guys so much for doing that, and I'll a big thank you to Elizabeth Warren for sponsoring this video. Just kidding, guys, uh, the video doesn't have a sponsor, and now let's begin.

All right, so to begin, for those unaware, Celsius was started as a way to put their community first with military-grade security, next level transparency, and a do-it-all app designed to help reach your financial goals. I mean, in hindsight, it's pretty ironic that they've disabled withdrawals and have come full circle from their first post saying, "If you don't have free and unlimited access to your own funds, are they really your funds?" But I digress.

Celsius is a platform where users could earn interest on their cryptocurrency deposits or borrow money against more than 40 different assets. On the surface, that business model isn't exactly unusual. You deposit your cryptocurrency within their earned feature; they lend it out at a higher interest rate for those who want to borrow, and they pay you back a portion of their profits ranging anywhere between one and twelve percent. Banks do something similar on a much, much smaller scale, so it makes sense to extend that feature to different assets, right?

Well, not quite. Coffee Zilla posted a video the other day where he made a great point: Celsius was paying out nearly as much money as they were earning from interest payments – or eighty percent of how much they make – which would put them in a difficult position should the market fall and they not have the liquidity to pay back their users.

However, one of the first signs trouble came in April of this year when the SEC ruled that only accredited investors, or those currently on the earned platform, would be able to earn rewards, along with several states who opened up an investigation into the inner workings of Celsius, alleging that they've crossed over into the world of offering securities. Of course, Celsius denied those claims, saying that they wholeheartedly disagree with the allegations being made and that we always have and will continue to work with regulators in the U.S. and globally to operate in full compliance with the law.

At the same time, other crypto lending features began to face similar scrutiny, with Coinbase blocked from being able to offer their services, along with BlockFi agreeing to pay a hundred million dollar settlement at the same time of an investigation into crypto.com. The issue comes with the concern that crypto lending should be classified clearly as a security and therefore regulated as such, which it isn't.

Now, each platform alleges that they operate differently and that a currency shouldn't be called a security, but whatever the reason, the SEC believes there to be a risk to investors, and so they're cracking down. However, that is just the very beginning because while other platforms have not had any liquidity issues, Celsius is at risk of a complete collapse.

This all allegedly begins with what's called staked ETH, which allows users to deposit Ethereum as a validator for a fixed interest rate. Under the scenario, users could deposit one Ethereum into a platform like Lido and get back one staked ETH equal to the amount that they deposited. It's really no different than you lending me one dollar in cash and me giving you back an IOU for a dollar that could be redeemed one to one.

Well, Celsius allows you to stake your staked ETH; well, they could potentially take those holdings and then borrow against it for an even higher return to help pay you back with even higher rewards. This business model works well as long as the price of one Ethereum is equal to that of one staked, but as the entire market dropped over these last few months, too many people began swapping out their staked Ethereum all at once, causing the price to depeg from its one-to-one ratio and leaving Celsius in a predicament where maybe they don't have the liquidity on hand to pay their users the amount that they want to withdraw, causing them to halt all transactions until they come up with a solution.

Since then, they've hired a law firm that consults in company restructuring and bankruptcy. But ultimately, the responsibility comes down to the individual user. As soon as you sign off on their terms of service and the fine print, Celsius makes it clear that they may lend, sell, pledge, hypothecate, assign, invest, use, commingle, or otherwise dispose of assets that are not held in the custody wallet. You agree and acknowledge that you're exposed to the possibility that Celsius may become unable to repay its obligations to you in part or in full, in which case any digital assets in your Celsius account that are not using the custody service may be at risk of partial or total loss.

Basically, it's the Wild West, and since your money is not protected by FDIC or SIPC insurance, you're out of luck. Now anecdotally, I do find it amusing that when the SEC threatened to sue Coinbase over their earned feature, people complained that they were getting in the way and preventing people from getting yields, providing liquidity, farming, and staking. But once the money is lost, people say that the SEC should have been involved sooner.

So unfortunately, you could only pick one. At this point, I don't want to give any false hope or promises to anyone who has money on the platform, but I probably wouldn't hold out or make any plans about having any access to those funds. So in terms of my own loss, it stings, but it could have been worse. From the very beginning, I made a strong point to only invest a small part of my portfolio in an equal combination of Bitcoin and Ethereum – that's it. What started off as one percent grew to three percent, and at its peak it was about seven percent of my net worth.

Although having been through the 2017 crypto bull run and collapse, along with an unsuccessful crypto hack attempt, I made sure to never become too reliant on just one platform or an exchange, and therefore, I used five with varying amounts in each. It just made sense to me that I would try a little bit of everything, and that way when I talk about something, I’ll have had first-hand experience with it.

And you know, like I mentioned, Celsius was one of them. Now, I'm extremely familiar with the phrase "not your keys, not your coins," referencing the fact that unless you own the wallets, your crypto's at the mercy of the exchange it's held on. But I knew the risks and mentally prepared that any money I put into crypto could potentially be worth nothing. If it's worth something in the future, as a way to diversify my portfolio, great; if not, it's a relatively small amount in proportion to everything else, so it's nothing to worry about.

In this case, I regret to say that I did have some of these funds in Celsius using their earned feature at two to five percent interest, and because those funds could be commingled with other riskier options, a portion of my holdings were caught in the crossfire along with everybody else. Thankfully, it's an amount that I don't lose any sleep over, and it's a small portion of my overall cryptocurrency portfolio – simply the cost of doing business for the sake of research.

But that does not excuse the fact that, one, many people have invested their life savings and way too much money that they could afford to risk; and two, it's an area that needs strict regulation to prevent this from happening ever again. For example, another lender, Thin Blocks, had just capped withdrawals to 500 a day and fifteen hundred dollars a month for all users. And if the cryptocurrency market continues to fall, we could see the unraveling of interest-bearing accounts that only work until they don't.

Crypto hedge funds are not doing well either, with 3AC also facing an insolvency crisis and Mike Novogratz calling for two-thirds of those hedge funds to go out of business. Either way, the reality is any time you earn above the average, you take a risk in direct proportion to your chances of losing money. In this case, even a one percent return was unsustainable when those assets are pledged against high-yield cryptocurrencies, potentially backed and pledged against an extremely volatile market.

And unless your money is protected by FDIC or SIPC insurance, there's always a risk—even if it's extremely small—that it's not going to turn in your favor. In this case, the way I see it, Celsius is simply just stalling for time while they figure out a way to resume operations. But depending on their financial situation, it might be too late.

Sure, they might be able to find a lender to cover withdrawals, but who in their right mind would lend the money? Maybe they find a bigger fish to buy them out, but that's a delicate legal process, and it could be months, if not years, before people get access to their money. The best case scenario is that they magically come through with their liquidity, but even then, it's safe to say that they've already ruined their reputation.

As much as I would like not to lose money, it's not an easy fix once the lawyers get involved. It's not as easy as saying, "We can afford to pay everyone back, uh, 80 percent of their money, so there you go, take it." Uh, lesson learned.

It's a drawn-out process through the legal system, and it's up to the courts to decide what's going to happen. This is a risk when it comes to cryptocurrency that in the event of bankruptcy, their funds are not protected. This was a new disclosure set by the SEC in regards to public companies that hold crypto assets on behalf of others, and I think even if the chance is extremely small, that people make themselves aware that this can happen.

That's why the safest crypto storage is to simply take your coins off an exchange and only invest in amounts that you come comfortable with losing. For me, I'm comfortable risking five percent of my entire portfolio, spread throughout multiple exchanges. I never keep more than twenty percent of it in one place, and I've accepted that it's probably going to be worth nothing. That way, anything I make is a bonus, and I don't count that money towards anything meaningful.

This needs to be emphasized because when I see articles about how Gen Z and Millennials are turning to cryptocurrency as a way to retire, it makes me nervous that they're investing in something without understanding the full repercussions. And that is why I'm making this video today.

And by the way, I want to make it clear that I do wish Celsius all the best, and I really wish they could make it out of this mess. So, I'm going to be going down to their headquarters to see if I could help them out.

Dear Celsius, feel better. Wishing you a speedy recovery of all customer funds. Yours truly, Graham.

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