The Consequences of Silence

Ed Zitron 10 min read

I am not a particularly emotional man, but when I read some of the letters to the judge of Celsius’ bankruptcy case (brought to my attention by Molly White), I began feeling a deep, painful sadness.

Currently I have my entire life savings & retirement invested in Celsius in the stable coin USDC in the amount of $205,001.66 I cannot begin to tell you the level of devastation and horror I felt when Celsius froze withdrawals.

Having my funds frozen has been devastating to me and my family both financially, mentally, and physically. I cannot sleep most nights and am over-whelmed with worry and dread for my family’s future. I have two small children. A 3-year-old daughter and a 2-year-old son. I am the sole bread winner for my family, and I pride myself on making smart financial and parental decisions for them to provide a better life and a bright/positive future.

Andrew Dochterman, Celsius Earn Account Depositor.
I am not a lawyer. I am a hardworking middle class husband and father who is struggling to make ends meet, every single week. At the moment, I have under $1,000 in my Wells Fargo checking account, which, as a result of the freeze, is my only source of funds to provide for my family. I live in California, where everything is egregiously expensive, and there is absolutely no way that I can continue to provide without access to my assets at Celsius. I request an immediate release of my funds under several pretenses, the first and foremost reason being that this is an EMERGENCY situation, simply to keep a roof over my family and food on their table.

Stephen Bralver
I placed my entire EIDL loan, $525,000 in Celsius to earn an APY to help pay back the 3.9% interest on the loan while I was in the process of deciding on if I would keep the EIDL or use it on my business. I deposited these funds a few weeks after the Celsius rules changed on their “Earn” accounts which required a user to be an Accredited Investor, which I was not. My funds were placed in a Custodial Account which I believed to be safe and according to their “Terms of Use” would not earn rewards and “shall at all times remain with the user” and “Celsius will not transfer, sell, loan, or otherwise rehypothecate unless specifically instructed by user, except as required by valid court order, competent regulatory agency, government agency or applicable law.”
The funds in my Celsius Custodial account are not mine, they are the US Governments and I my entire business is secured and backed by these funds. If they are not returned, my business would go bankrupt, my 15 employees would be let go, and 14 years of my life’s work lost and at the age of 49 years old, I would have to start over with nothing.

The thought of losing this money has left me depressed, suicidal, and without words. Please return our money.

Kevin Montford

There are about a hundred different letters to the judge, many of them speaking of the fear and depression caused by having money that they desperately need to help keep their families fed locked up in Celsius’ coffers. Each one feels more desperate than the last, with some speaking of money they’d lost because - ironic, considering why Celsius is insolvent - they weren’t able to cover their margin calls, as the platform had stopped accepting new collateral, meaning that they had loans liquidated through no fault of their own. One woman from Australia spoke of needing money to pay for the hospital when her third child was born, her life savings locked up in the platform. In fact, many people talk about losing their life savings, and others speak of having little  cash to their name, the majority trapped in Celsius.

Others are enraged that Celsius is requesting $3 million a week for payroll and $90,000 a month for “credit card debt” instead of returning customer funds. These are real people that are deeply embarrassed, realizing far too late that a scam took them in. These are single mothers struggling to get by, hoping this was their chance to have anything approaching a retirement. These people are fathers planning for their child’s future, they are retired teachers, and they are facing “devastation and extreme stress…feeling powerless,they are immigrants that worked 84-hour weeks to  pump money into Celsius in the hopes that they could live the American dream. They speak of their despair as they realize that Celsius’ promises of safety and compliance were entirely false, conned by manipulative marketing lies spread by Celsius. One pregnant woman sent an ultrasound of her unborn child to Alex Mashinsky, hoping to withdraw her funds.

It’s easy - and I am guilty of doing so - to have some levity when you read about people losing money on cryptocurrency. It’s easy to think that every person that lost is the same monster you’ve seen on Twitter - a now-rich goon that over-leveraged on monkey JPEGs, a millionaire that is now only a slightly less rich millionaire, and so on - a caricature of something you hate, symbolic of technological hubris that now suffers in a way that’s both satisfying and entertaining.

The reality is less comical, a well of sadness and despair created by a society with few opportunities for the average person to accumulate wealth. Alex Mashinsky and the people working at Celsius are scum, con-artists, and deserve nothing but suffering and pain for the outright lies they have told, the lives they’ve destroyed, and the lives they will destroy through their recklessness and utter, craven evil. Though it’s hard to measure exactly how widespread the damage is, I would gauge that Celsius has caused more widespread retail investor damage than Bernie Madoff, with $12 billion of assets locked up. As I’ve sadly predicted before, cryptocurrency has always resembled the subprime mortgage crisis. Mashinsky is just one of several Madoffs, a Hall of Fame piece of shit that deserves to be broken in two by the legal system and thrown in a room with no windows for the rest of his life.

If even a third of Celsius’ assets are retail investors, that is still $4 billion that has been extracted from regular people. The Telegraph warns of a “Lehman moment” in crypto because it’s increasingly likely that Celsius doesn’t have the money to return everybody’s funds and may even go as far as to say they don’t have any rights to them, with their lawyers saying that Celsius’ 1.7 million users “gave up legal rights to their crypto.” Celsius is transparently attempting to dodge blame through the vast amounts of legal statements that users agreed to when signing up for a service that former employees claim "[was not] managing risk well,” and apparently was manipulating their own token:

Cradle said he was especially alarmed by conversations at a Celsius Christmas party in 2019 about a cryptocurrency created and used by Celsius, called the “cel” token. Executives said they were “pumping up the cel token” and “actively trading and increasing the price of the token,” Cradle said.

I have previously said that lax journalism and criticism of cryptocurrency would have a deep, dark human cost, one that would take a long time to fully measure:

Oh, and if you’re wondering whether this many people can be stupid? Please remember the subprime mortgage crisis. Rich people are fully capable of being manipulative and exploitative, and many consumers can be extremely irresponsible if they believe they are able to increase their wealth, especially if said wealth increase appears to be easier or quicker than doing it the normal way.

It is truly astounding to me how few lessons were learned from that crisis. And yes, there were examples of major media outlets uncritically publishing information about subprime loans.

This is exactly what I feared. When warnings were made about “bad actors” in cryptocurrency journalism, companies like Voyager and Celsius were rarely (if ever) mentioned, despite them giving outsized, completely unrealistic returns (“up to” 17% APY is still advertised on their website). The obvious question when faced with these returns was “how the hell are you getting these returns?" with their vague answer being “because we make money on loans, like banks,” and yet few saw fit to ask further questions. A Bloomberg piece from January was the only major media outlet I could find that questioned these magic returns:

In one of last year’s interviews, Mashinsky said banking and securities laws shouldn’t apply to Celsius, because cryptocurrencies are commodities, a view that many in the industry espouse. He compares Celsius to a neighbor who borrows a cup of sugar, then later gives back a cup and a tablespoon more. “Let’s say we’re neighbors, and I came to you, and I borrowed sugar because I’m out of sugar,” he said. “The regulators today don’t look at these kind of loans as something that they need to regulate.”

Former employees, who requested anonymity to protect their job prospects, say that while the company’s investment strategy makes sense, Celsius has taken risks with users’ money that might surprise them. In addition to lending to institutional investors, they say, Celsius has invested hundreds of millions of dollars of customer funds through DeFi protocols—apps run only by software that lets users deposit funds and earn high yields. And they say one of the company’s top DeFi money managers—who maintains an anonymous Twitter account with an avatar of a demon mutant ape—left in the summer amid a dispute. In December, Celsius said it had lost $54 million in a DeFi hack but added that user assets weren’t affected.

It also finishes with a truly brutal kicker:

“Look, there’s no free lunch out there,” says Duke University finance professor Campbell Harvey, who co-authored DeFi and the Future of Finance. “If someone is offering an extremely high expected return, you have to be very cautious.”

One of the darkest parts of the Celsius bankruptcy letters is the continued misplaced hope. Almost every letter pleads to have their funds returned, begging the bankruptcy court judge to return it “immediately” as if Celsius hasn’t filed for bankruptcy with the intention of keeping as much of their money as possible. Those who have treated cryptocurrency as “optimistic skeptics” or “with an open mind” are partly responsible for this situation, because they failed to at the very least warn that returns from these companies - BlockFi, Celsius, Voyager, and beyond - were incredibly, unrealistically high, and that there was no legal financial institution that would give such high returns.

Despite growing out of the 2008 financial crisis, Bitcoin has led to the creation of a faster, leaner and crueler crisis of its own, an unregulated hellscape where the elites have found yet another way to get rich off of the backs of regular people’s money. Whatever “noble” goals Bitcoin and cryptocurrency allegedly has or had are irrelevant - cryptocurrency does not generate freedom, it does not democratize finance, it does not create wealth for the majority of people that interact with it, and it has - this is not a “might” - led to billions of dollars of regular people’s money getting burned so that wealthy people can extract liquidity from them.

I do not care if you think this is “like the early days of the internet” or that crypto “might” do something cool someday - this is not a quirky startup with a niche audience, but unregulated and lethal financial software that functions only to take money from retail investors and send it upwards. Every time the media has humored these concepts as cute, or early, or acted as if the scams are “rare” and the majority of the industry operates in good faith, they have been complicit in creating meaningful financial harm to millions of people. I’m not even talking about writing about specific companies - I mean articles like this:

Are we making the same mistake with crypto today? It’s possible. No one knows yet whether crypto will or won’t “work,” in the grandest sense. (Anyone who claims they do is selling something.) But there is real money and energy in it, and many tech veterans I’ve spoken to tell me that today’s crypto scene feels, to them, like 2010 all over again — with tech disrupting money this time, instead of media.

This kind of fanciful rhetoric with anonymous comments and vague statements about “disruption” leads people to believe that they’re at the beginning of a beautiful future, rather than the far more likely event that they’ll get wiped out. The human cost is real, the damage has been done, and it will continue to be done to people until this industry is regulated into the ground.

And I think we’re going to start seeing that happen as a result of the fallout from Coinbase’s insider trading case, where the SEC also named nine different crypto assets as securities. Damian Williams, the U.S. Attorney for the Southern District of New York, was also the force behind the insider trading case at OpenSea, and if he - and the judge in question - actually succeeds in declaring these assets securities, this entire industry could unfold with remarkable speed.

Celsius could - and I hope it will - be the beginning of the end of many crypto firms, in that any logical government would use this as an opportunity to force actual regulations upon anyone taking money and handling cryptocurrency. The industry will claim that Celsius and Voyager are outliers - bad actors in an otherwise trustworthy industry - but at this point, where are the good actors? Where are the success stories that aren’t buoyed by a spuriously-valued industry? Because there certainly aren’t any actual, real, meaningful, useable products - not in Web3 or any other corner of this rotten industry - and all that was left were “trustworthy” companies like BlockFi, Celsius and Voyager that magically outpaced the returns of even the most excitingly-marketed bank.

On the fringes of this endless financial entropy exists Sam Bankman-Fried, multi-billionaire and CEO of crypto exchange FTX. Fried is intent on becoming the “respectable” crypto guy, offering credit lines to or buying up distressed crypto companies with a seemingly-endless flume of funds, including companies like BlockFi who ran out of money because they were taking user funds and lending it out to people to give users the yields oh and the whole $100 million thing to the SEC. Fried claims “that right now it's okay make a "moderately bad deal" if it will improve the overall "health" of crypto as an industry,” claiming he (or FTX, or Alameda, it’s not obvious) needs to be a “good, constructive actor in the space.” Supposedly, he didn’t bail out Celsius because they had a $2 billion hole in their balance sheet, which should get absolutely nobody any credit ever.

However, the real question is what is being bailed out and why. Why bail out BlockFi, a company that had just been fined massive amounts of money by the SEC for having illegal loan products? Why even think about bailing Celsius, or Voyager, or any other company in this space out, especially as it becomes blatantly obvious these are bad companies that almost cease to function the moment there’s a bear market?

My theory is simple: I believe that Sam Bankman-Fried, despite what he says, is trying to centralize an industry that effectively prints money, while also protecting the value of what I imagine are his own huge amounts of assets held in crypto. It isn’t obvious how much money SBF actually has - “most of his wealth…is tied up in ownership of about half of FTX and a share of its FTT tokens” according to Forbes - but he is currently playing a risky game of leveraging assets to buy other assets so that he can sustain the value of the industry that gives his lead asset, FTX, the value that sustains his wealth.

And really, if you’re the “good actor” in a space, why are you rewarding bad companies with the money to sustain them for any other reason other than to sustain your own wealth?

Because you don’t give a shit about being a good actor - you just want to keep the con going as long as you can.

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