Celsius, The Trouble With Crypto

There are two schools of thought in crypto: to regulate or not to regulate.

Firstly I’d like to state something that I consider key. It is the idea that computing plus a basic human or technological activity is what drives huge value.

Computer + calculation = Excel. Computer + writing = word processing. Computer + gossiping = social media, and so on.

Crypto is especially powerful because it can be seen as, crypto = computing + politics. Money, governance, exchange, property, it’s all under a gamut core to politics. Obviously, money is right in the heart of that.

It is not surprising therefore that government is terrified of crypto and at the same time fascinated by it even though it is still a tiny market akin in scale to for example beer.

So with this tension you have an arc of opinion going from anarchy to authoritarianism, perhaps even totalitarianism. At one end a group believe it should not be controlled in any way beyond the crypto’s code, to at the other end total proscription of crypto.

Proscription simply cuts off the huge benefits of this breakthrough technology. The Romans banning machines to preserve the slavery system is an example, and that was likely the real reason their empire turned to dust. At the other end, the outcome of anarchy for all the efforts of its proponents to argue otherwise, is well, anarchy in the sense most people use the word, a world where you and your property aren’t safe. Government normally sits uncomfortable somewhere between the poles and as such applies itself to regulate at an optimal point.

At this point, crypto regulation is basically non-existent. In many cases it is being excluded from being properly regulated by regulators too terrified to deal with the situation and thereby making it nearly impossible for emerging business to operate at all. This is a delaying tactic because blockchain technology coupled with encryption— the heart of crypto—threatens to upend so many rentiers that major economies can’t stomach a quick emergence of crypto that might rupture the status quo and wreck much beloved “stability.”

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The much lauded ‘disruption’ loved by start-ups is not loved by government. It might be loved by us but not loved when it is us who are disrupted. Anarchy-loving crypto fans are all for the free for all, but not so much when they get hacked or lose their shirt on some criminal project, and this mirrors clearly the same dynamic with government. Folks might complain about their government constantly interfering but they rarely up sticks and go somewhere where their gun is the only thing between them and a nasty outcome.

Crypto is in a regulatory hiatus and the question is, which countries will grab the opportunity and which countries will prohibit?

The countries that embrace crypto will need to be very clever to fix what is broken with the system and most of that work needs to be squeezing the crooks out of the system without squeezing the audience out at the same time.

The whole Celsius (CEL), Three Arrows Capital (3AC) scandal is a perfect example of the problem that needs to be solved. The solution now is liquidation, but the real challenge is a system that would allow such a project to operate with it being able to slide down the slippery slope of dubious practices. This slippery slope is the one so many financial service companies get lured down and that gravity comes from proper business having to compete with cheaters. Cheaters undermine proper businesses, forcing them to close or dwindle by what amounts to dumping.

Celsius was a DeFi platform offering yield on deposits and its default lost a lot of money for a lot of normal people who sorely miss that money. I avoided losing money in Celsius because their rates stayed high while Compound’s had all but vanished and BlockFi’s deposit rates were falling hard. It looked like Celsius was trying to pull deposits from the more conservative DeFi platforms and that red flag had me out of their platform weeks before the Celsius implosion. Paranoia is a good substitute for luck.

So this brings me to a point.

Celsius token still has a market cap of $200m. Gone is its utility as the token of a functioning business, so it is worthless, but nonetheless you can sell it for money. There can be no ‘good’ reason why it trades millions every day and why the token of a bankrupt project is still worth more than 10% of its all-time high. It is just the sort of dangerous anomaly that brings crypto into further disrepute, and it is just the sort of issue that regulators need to tackle.

Issues will get addressed and sadly there will be lots of proscription. The smartest crypto regulators will be a huge asset for their economies while dead-hand regulators will be a strategic disaster. Meanwhile crypto will morph.

However, until crypto is made safe it will not enter the mainstream and that perhaps is the strategy of many regulators. They plan to keep the rules unfathomable, projects impossible to get regulated while letting the crooks predate on the audience to an attempt to create an environment that keeps the technology niche. This would be a very short sighted tactic which will see the countries that embrace crypto forge ahead economically with a tool that creates the critical component of economic progress, productivity.