CEO Traded Celsius Funds on ‘Bad Information’ Prior to Collapse: Report

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CEO Traded Celsius Funds on 'Bad Information' Prior to Collapse: Report
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Alex Mashinksy, the CEO of the now-bankrupt crypto lending platform Celsius, had taken personal control of the firm’s trading strategy before its collapse, according to a Financial Times report citing multiple people familiar with the matter.

Mashinksy reportedly gathered his investment team in January to inform them that he would be personally assuming control of the company’s trading strategy.

The meeting took place prior to a meeting of the Federal Reserve, during which the central bank revealed plans to raise interest rates—a move that, as Mashinksy was convinced, would have a negative impact on crypto markets.

By that time, the price of Bitcoin fell from its November all-time high of almost $69,000 to levels closer to $40,000.

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‘Huge chunks of Bitcoin’ moved by Mashinksy

The report claims that in the days before the Fed’s meeting, Mashinksy overruled executives with decades of experience in financial markets as part of his trading overhaul.

“He had a high conviction of how bad the market could move south. He wanted us to start cutting risk however Celsius could,” one of the people familiar with the events told the Financial Times, adding that not everyone agreed with the CEO.

One person the CEO reportedly clashed with over what trades Celsius should make and Mashinsky’s personal involvement in these decisions was the company’s then-chief investment officer Frank van Etten.

Van Etten’s spell at Celsius was quite short—the former Nuveen and UBS executive joined the company in September 2021 only to leave in February this year.

“He was ordering the traders to massively trade the book off of bad information,” one of the sources told the Financial Times. “He was slugging around huge chunks of Bitcoin.”

The crypto prices slumped further following the Fed’s meeting, with one source claiming that Celsius, which at the time held $22 billion in customer funds, incurred $50 million in losses in January.

It is not clear, though, how much of that amount was due to Mashinsky’s involvement in the company’s trading strategies.

Decrypt has contacted Celsius and Frank van Etten but has yet to hear back at press time.

Celsius’ undisclosed trades

The report also alleges that Celsius suffered hefty losses that the firm did not disclose to customers—despite Mashinsky’s public statements that it did not trade customer assets.

One such incident involved a U.S.-based lending firm EquitiesFirst, which owes Celsius $500 million worth of Bitcoin. As prices fell, the crypto lender hedged that exposure by buying Bitcoin ahead of repayment, with Mashinsky reportedly arguing that EquitiesFirst would be able to pay back its debt faster.

However, evidence that EquitiesFirst would repay its debt any faster simply didn’t exist.

“We entered into an agreement [with Celsius] well before the January date mentioned. Any alteration to that agreement would have required consensus from all parties,” a spokesman for EquitiesFirst told the Financial Times, adding that the company intends to fulfill all its obligations to Celsius.

Celsius and the Grayscale Bitcoin Trust

Another, previously unreported incident, involved what the report calls “a sizable investment” in the Grayscale Bitcoin Trust (GBTC), with one source indicating that the crypto lender suffered losses on GBTC of up to $125 million.

GBTC is a financial vehicle that enables investors to trade shares in trusts that hold pools of Bitcoin, with each share meant to track the current price of Bitcoin; the idea is that investors can gain exposure to the leading cryptocurrency without having to actually buy and hold the asset itself.

However, since February 2021, shares in GBTC have traded at a discount, meaning that GBTC trades for less than the net value of the Bitcoin held by Grayscale to back the trust.

Celsius incurred its losses after buying GBTC when it traded at a premium to Bitcoin.

By September 2021, Celsius held 11 million shares of GBTC, worth about $400 million, but which were then trading at a 15% discount to the trust’s net asset value.

Celsius was offered a deal to exit the position, but Mashinsky reportedly blocked the sale of the company’s GBTC holdings, arguing that the discount might eventually narrow.

Things, however, turned otherwise, as the GBTC discount continued to worsen, with Celsius exiting the position only in April this year, when the discount fell to 25%.

Bitcoin mining business falls short

A series of other poor decisions that eventually resulted in the company’s bankruptcy last month included pledging cryptocurrencies the firm held as collateral to borrow stablecoins it would later use to buy more crypto to replace those it had lost, other sources said.

These arrangements, however, meant that Celsius was vulnerable to sharp declines in crypto prices. The firm would have little of its own cash in situations where customers would demand their crypto back at the same time that it had to send more to its lenders as additional collateral for the stablecoin borrowings.

The report added that Celsus also invested much of the $600 million it raised from investors, including Canada’s second-biggest pension and insurance fund Caisse de Dépôt and New York-based WestCap Group, into its Bitcoin mining subsidiary.

The mining business was meant to be used to generate additional Bitcoin to pay back creditors and clients. Last month, however, it also joined the parent company in bankruptcy protection proceedings.

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