Behind the Celsius Sales Pitch Was a Crypto Firm Built on Risk

Celsius Network CEO Alex Mashinsky built his cryptocurrency lender into a giant on a pitch that it was less risky than a bank with better returns for customers. But investor documents show the lender carried far more risk than a traditional bank. From a report: The lender issued numerous large loans backed by little collateral, according to Celsius investor documents from 2021 reviewed by The Wall Street Journal. The documents show that Celsius had little cushion in the event of a downturn, and made investments that would be difficult to quickly unwind if customers raced to withdraw their money. Celsius had $19 billion of assets and roughly $1 billion of equity as of last summer, before it raised new funds, according to Celsius investor documents from 2021 reviewed by the Journal. The median assets-to-equity ratio for all the North American banks in the S&P 1500 Composite index was about 9:1, or about half that of Celsius, according to data from FactSet.

For banks, that ratio is of great importance: Regulators look at it as an indicator of risk. For unregulated companies like Celsius, the ratio of 19-1 is particularly high given that some of its assets were investments in the extremely volatile crypto sector, said Eric Budish, an economist at the University of Chicago's business school who studies cryptocurrencies. Large banks often have ratios near Celsius's, but they hold much more stable assets and have access to central-bank loans for ready cash. Founded in 2017 by Mr. Mashinsky, Celsius surged amid the crypto boom to become one of the biggest crypto lenders, with more than $12 billion in deposits. Customers, wooed by high interest rates, flooded in, while venture capitalists showered it with money. Contrasts with banks were at the center of Mr. Mashinsky's public persona. Mr. Mashinsky frequently said Celsius passed along 80% of its lending revenue to customers in the form of its high yields. He often wore a black T-shirt reading, 'Banks are not your friends.' Compared with banks, 'we have much less risk, but we've managed to deliver high single-digit, low double-digit numbers,' Mr. Mashinsky told the YouTube channel CTO Larsson in August. Mr. Mashinsky said on a podcast last month that while 'normally in panic, everybody runs to the bank and withdraws their money because they're afraid the bank is going to fail,' Celsius had proven different in crypto downturns, as its business increased.

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