Here’s What’s Really Behind Crypto’s Latest Drop
I’ve been investing for over 20 years.
One of the darkest times I remember is the failure of Lehman Brothers in 2008.
At the time, it was the fourth-largest investment bank in the U.S.
And with its collapse, our country was tipped into a financial crisis.
I’m seeing the same thing playing out right now in the crypto markets.
A month ago, the LUNA protocol and its stablecoin, UST, collapsed.
The protocol was built with a fatal flaw that allowed it to expand rapidly.
But there was no backstop once investors lost faith in UST’s peg to the U.S. dollar.
This event wiped out nearly $60 billion of crypto value in less than a few weeks.
This cast a dark cloud across the crypto landscape.
Now that the crypto tide is going out, we’re starting to get a look at who’s swimming naked.
And it looks like the market just revealed an ugly truth about a popular DeFi app…
The Story Behind the Latest Crypto Crash
Just over this past weekend, another $200 billion was erased from the crypto markets.
If you were wondering about the story behind this latest crash, look no further than Celsius.
Celsius is an app that lets users earn interest on their cryptos by lending and staking them across DeFi.
A few days ago, someone on Twitter mentioned the company might not be properly funded.
Celsius CEO Alex Mashinsky quickly clapped back:
However, these rumors tipped off a digital bank run.
It sent bitcoin down to $21,000, its lowest point in 18 months.
Within 24 hours, Celsius announced it was halting withdrawals.
In banking, confidence is everything. After LUNA, investors are moving funds first and asking questions later.
Celsius: Revealed at Last
The run on Celsius shook the crypto markets, but as it turns out, its reckoning was long overdue.
Celsius is supposed to make it easy to invest and earn yield from DeFi protocols.
As you can see, there’s a huge point of failure here because an investor doesn’t really know how Celsius handles their funds.
And there, as Shakespeare says, is the rub.
It appears Celsius:
- Misled investors.
- Lost funds in exploits like LUNA.
- Wasn’t transparent about customers’ reserves on its balance sheets.
And the company has a history of missteps.
Critics have raised concerns about its unusually high yields (over 18.6%) and its exposure to LUNA.
To make matters worse, Celsius’ CFO was arrested in November.
He faces charges of fraud, money laundering and sexual assault.
Regulators across various states have already been looking into Celsius’ activities.
New Jersey went as far as issuing a cease-and-desist order last September.
Now, halting customer withdrawals will likely be the death knell for Celsius.
Its CEL token traded as high as $8 last summer.
After Monday’s rout, it traded as low as $0.07 before rebounding to $0.30.
CEL Traded as Low as $0.07 on Monday
Customers are running for the exits because the company isn’t protected by FDIC insurance.
That means its roughly 1.7 million users might not recover all of their deposits.
And for Celsius, there’s no coming back from that.
Weak Actors Flame Up and Burn Away
What we’re witnessing is the part of the crypto cycle where the weak actors flame up and burn away.
It’s a natural part of capitalism for creative destruction to weed out the good from the bad.
It will direct more capital to the winners and set the table for the next crypto bull market.
Editor, Strategic Fortunes
P.S. If you’d like to learn more, stay tuned to Winning Investor Daily for the next two weeks. In my next crypto event, I’m going to address the crypto market’s recent crash. I’ll reveal why this downturn is actually good for cryptos and why it’s setting the market up for a historic bull run. Be on the lookout for more details soon.
From open till noon Eastern time.
New Oriental Education & Technology Group Inc. (NYSE: EDU) provides private educational services under the New Oriental brand in China. It is one of the stocks that is up 22% today as global funds and major investors start to bet on a revival in Chinese stocks.
Symbotic Inc. (Nasdaq: SYM) is an automation company that provides robotics and technology to improve efficiency for retailers and wholesalers. The stock is up 22%, continuing its rocky trading pattern since it went public via a SPAC deal last week.
IQIYI Inc. (Nasdaq: IQ) provides online streaming and entertainment services in China. It is another Chinese stock that is up 18% today as big names like Goldman Sachs predict that Chinese stocks have hit bottom and have plenty of upside.
Continental Resources Inc. (NYSE: CLR) explores for, develops, produces and manages crude oil, natural gas and related products. The stock jumped 14% after billionaire and founder of the company, Harold Hamm, offered to take the company private for about $4 billion.
FedEx Corp. (NYSE: FDX), the package delivery and logistics company, is up 13% today. The move came after the company raised its quarterly dividend by 53% as part of a new agreement with activist investor D.E. Shaw.
Braze Inc. (Nasdaq: BRZE) operates a customer engagement platform that provides interactions between consumers and brands worldwide. The stock rose 11% after the company reported better-than-expected results for the first quarter and raised its guidance for the year.
Amylyx Pharmaceuticals Inc. (Nasdaq: AMLX) develops various therapeutics for amyotrophic lateral sclerosis (ALS) and other neurodegenerative diseases. It climbed 11% after Health Canada approved Albrioza, its treatment for ALS.
BridgeBio Pharma Inc. (Nasdaq: BBIO) engages in the discovery, development and delivery of various medicines for genetic diseases. It is up 10% after the company reported positive Phase 2 results for Encaleret, its low-calcium disorder drug.
Bilibili Inc. (Nasdaq: BILI) provides online entertainment services aimed at the young generations in China. It is yet another Chinese stock that is up 9% today as investors see a buying opportunity in Chinese stocks after their poor performance for over a year.
National Vision Holdings Inc. (Nasdaq: EYE) is a specialty retailer of eyeglasses, contact lenses and optical accessory products. The stock is up 9% on the news that the company is set to join the S&P SmallCap 600 Index later this week.
My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives. Eventually, I needed to walk away from the excess of Wall Street. That’s when I joined Banyan Hill in 2017. Now I help readers get ahead of the market and build their retirements.