The Crypto Crash is Worsening.

hey everyone me Kevin here good news

it's the last day of my vacation so

hopefully markets will rebound by

tomorrow but quick background on what

the hell is going on in the crypto space

especially with massive developments

with what's going on with Celsius and

one of the largest crypto hedge funds

attorneys are now involved folks there

are a lot of dirty things going on here

let's get right into it okay so quick

background we talked about Celsius a

little bit already the other day but

some quick background Celsius is

supposed to be a fintech app that gives

you high yields on crypto and stable

coins they also give loans backed by

crypto think of them as kind of like a

Vanguard almost although at this point

that's kind of disrespectful to Vanguard

they've got some pretty classic

catchphrases for a fintech like military

grade security and withdraw your crypto

at any time yeah that's no longer True

by the way because remember on Monday

they froze everybody's ability to

actually swap or withdraw their crypto

remember not your keys not your crypto

they also promise to keep your crypto

safe and have Next Level transparency

oops they also say that tradition

national banking is broken that you

should unbank yourself and that you

should replace Wall Street with

blockchain and really be part of the 99

percent and screw the one percent so

really like popular things especially

amongst younger individuals and mostly

dudes now one of the downsides of this

is if you go to Reddit slash R Celsius

Network you'll see a lot of individuals

who have their life savings in Celsius

and now they can't get any of it out and

the problem could be because of what

Celsius was doing with some of their

coins now some of this is part

speculation and part you know research

based on what's going on in the

blockchain here but we want to be very

clear we obviously don't have all of the

details but one of the reasons that

Celsius is falling into issues is

because of their promise to pay yields

of between seven to Seventeen percent on

their stable coins in crypto but this is

often done or achieved for Celsius

through a manner known as recursive

farming which we're going to talk about

in just a moment but it's also achieved

by continuously attracting new customer

deposits so while there are a lot of

positive suggestions on Reddit for

Celsius to just stop paying yields

people have to remember that Celsius is

trying to attract New Capital to pay

people who are trying to get out

unfortunately that's also how ponzis

work and I'm not calling Celsius a Ponzi

but just saying there's no surprise also

that Gary Gensler the chairperson of the

SEC and it's kind of like kicking you

when you're down but comes out yesterday

and going you know when you start

getting promised double digit yields

it's a red flag but anyway here's what's

going on with Celsius and something

known as staked ethereum now again

rumors speculation and some fact we're

putting all the pieces together that we

can but some of these things may not be

perfectly accurate and if you have more

information please comment them down

below and let's vote up new information

so we as a community can learn more so

by now you probably know that ethereum

can be staked by locking up at least 32

ethereum into the eth 2.0 merge the

beacon chain right it's supposedly

coming this year Well companies like

Lido were really Innovative because they

gave you the ability to stake your

ethereum that is get yields on your

ethereum without the lock up all the way

to 2.0 this has given Lido control of

almost a third potentially even more at

this point of the entire ethereum

network because they have so much

ethereum staked it's incredible but via

Smart contract they can now allow you to

receive stay baked Eve so kind of think

about this imagine you take ethereum and

that you have you have an ethereum token

and you kind of deposit it into a vault

and then the banker gives you a little

piece of paper that says all right you

we owe you one ethereum and we're going

to call it staked eth So in theory that

piece of paper should be worth exactly

one ethereum you should be able to go to

the bank and go give me one ethereum and

they go here you go so it's basically a

peg it's a one to one peg and in theory

because of this ethereum is more

valuable in the short term because it

removes the risk of that Peg breaking it

gets the banker out of the middle right

but as long as everything's going good

and the bankers actually operating

properly and you're getting that

one-to-one Peg who cares if you have the

paper or the token okay well this is

where not your keys not your crypto

comes into play because see in the long

term

ethereum or staked ethereum might give

you this trading flexibility but if

there's a short-term Panic you might not

be able to go to that banker and give

your ticket to the banker because if

there's a line of 10 000 people ahead of

you at the bank all of a sudden you have

a bank run and they're not actually

giving you tokens anymore and they're

just closing the Vault saying you know

what never mind hold on to your

worthless pieces of paper well not

necessarily worthless because in theory

they still have rights to that token in

the vault but this could be potentially

part of what's happening over at Celsius

see in order for Celsius to get the

yields that they were promising so that

they could actually run a potentially

profitable business if they're promising

people you know seven to Seventeen

percent they got to make it up money

somehow right so here's potentially what

Celsius could have done

Celsius could have taken your ethereum

put it into the Vault with a banker

gotten staked eth now what they may have

done with the staked eth is conducted

recursive farming so recursive farming

kind of works like this staked eth can

earn a yield just like ethereum can and

steak eat steak teeth are

s-t-e-t-h can also be deposited as

collateral for stable coins so imagine

taking that piece of paper now and going

to somebody else and going hey I want a

loan from FTX or whomever and I want in

exchange for me giving you my piece of

paper saying I have steak beef I want 50

or 70 percent depending on how high

quality of a borrower you are a bunch of

loans against the staked eth and then

that money can be then deposited into

stable coins which could potentially

provide a yield and you could take that

stable coin and potentially then sell it

and buy more or staked eath and

basically over and over and over again

Farm yields let me give you a really

oversimplified example because that may

have sounded slightly complicated but

listen to this example and I think it'll

give you a lot of clarity right after of

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let's give this example here on yield

let's say and we're making this up okay

but here's how this could work this is

called recursive farming let's say you

have a hundred thousand dollars and you

stake it you turn it into staked eth and

you get a four percent yield well now in

a year you're going to get four thousand

dollars but now I'm going to take those

tickets that staked ethereum and I'm

going to farm stable coins in a

recursive manner so I'm going to take

those tickets deposit them and let's say

I could get a 50 loan this isn't even

potentially making the argument that I

could get an 80 loan because I'm such a

good big company like Celsius

so now I get 50 000 more dollars which I

then have in a stable coin making eight

percent or four thousand dollars again

now I take that stable coin and I throw

it back into the circle and I borrow one

that fifty thousand again and then I

stake that twenty five thousand Now new

dollars worth of stable coins at eight

percent I make two thousand dollars now

I do it again use that that new money

that I've borrowed it's collateral again

this could be at different exchanges or

whatever now I get another fifty percent

or twelve thousand five hundred dollars

and then I get eight percent of that or

a thousand dollars I do it again I get

six thousand two hundred fifty dollars

times eight percent five hundred dollars

I do it again I get three thousand one

hundred two hundred and twenty five

dollars you know stake that at eight

percent or or yield farm that at eight

percent I get two hundred fifty dollars

if you add this all up I just turned I

turned a hundred thousand dollars into a

hundred and ninety six eight hundred and

seventy five dollars so 196 000 875

dollars and now I'm making 11 750 per

year or boom

11.75 you could see if I could borrow up

to eighty percent and I do recursive

farming I could probably get this number

up to twenty percent give people a yield

of Seventeen percent and Profit the

three percent difference but this works

as long as that staked ethereum is worth

the same number as or the same value as

ethereum and that stable coins don't

lose their pegs right if Celsius had any

exposure to Lido they would have lost a

substantial amount of money if they had

exposure to staked ethereum which they

know we know they have a lot hundreds of

millions of dollars of exposure to

staked ethereum well now you've got a

problem why because ethereum right now

at the time of this recording is trading

for one thousand sixty six dollars

staked ethereum is trading for one

thousand and two dollars that's a sixty

four dollar discount or just over five

percent of a discount and the more that

discount expands the more money Celsius

loses because as people Demand with

withdrawals Celsius is actually having

to pay people a hundred dollars but

they're only getting out maybe ninety

four dollars or ninety dollars out of

their staked ethereum this is a problem

how do we know they have staked ethereum

well here's a wallet that we believe

belongs to Celsius that has

approximately 400 million dollars worth

of staked ethereum which is now only

worth about 94 cents on the dollar we're

also seeing what we believe is Celsius

sending thousands of staked ethereum to

FTX likely to sell it but a lot of those

sale transactions happen in batches and

they happen off chain so it's actually a

little bit more difficult to track now

Celsius is supposed to have about 10

billion dollars in customer access

some say five some say 10. but the

problem is we've only been able to

account for about 1.324 billion dollars

of that according to decrypt and this

blockchain wallet that you have on

screen now the illiquidity of staked

ethereum could however now create a

solvency crisis for Celsius the reason

for that is Celsius a few days ago says

Hey we've got plenty of ethereum to

cover withdrawals sure maybe you did

while the peg between ethereum and

staked ethereum was still one to one

however if let's say you had five

billion dollars of customer assets and

you had thrown everything into staking

or staked ethereum or whatever except

for maybe five percent to where you'd

have maybe 125 Million Dollar Cash

buffer but you just lost five to six

percent on staked ethereum depegging all

of your cash buffer and liquidity could

be gone and so now you're having to dump

more assets making uh or providing

essentially more liquid to something

like staked ethereum but by providing

more liquidity for staked ethereum

you're actually increasing the supply of

that then dropping the value of that

creating less liquidity for your company

and when your company has obligations of

let's say 125 million dollars in

withdrawals but all of a sudden you only

have 120 million dollars who's going to

lose that five million dollars well

potentially an equal share to all of the

people who had money with Celsius and

that now becomes a solvency Court crisis

because of the depegging of uh staked

ethereum and ethereum creating an

illiquidity crisis for ethereum you're

actually creating the potential for

insolvency over at Celsius

well now enter a report by The Wall

Street Journal The Wall Street Journal

is now reporting that I'm reportedly and

this is based on people who are not

authorized to speak on behalf of this

manner but reportedly restructuring

lawyers have been called in to enact

emergency measures at Celsius

according to Celsius at least has

nothing to do with the fact that Celsius

token is down 62 percent uh or sorry

it's actually up 62 percent today but

even after being up 62 today it's down

88 on the year Celsius says don't worry

this has nothing to do with our cell

token crashing even though we had money

in cell token don't worry about that but

what we do have to worry about is the

fact that now we got lawyers swooping

into Celsius raising fears that the

Celsius lender might be facing Mass

liquidations lawsuits and a potential

bankruptcy now according to people

familiar with what's going on at Celsius

Celsius is fired or hired the law firm

Akin Gump Strauss Hoyer and fell

dude I don't know about the name but

anyway

apparently they are supposed to advise

on possible solutions due to quote

mounting financial problems and again

the expectation is that Celsius could

file for bankruptcy and that this could

take years to settle and remember what

coinbase told us you are as a depositor

an unsecured creditor in the event of a

bankruptcy which basically means you get

last dibs after the bankruptcy now some

say don't worry that restructuring is a

positive thing that if lawyers can come

in and restructure the debt then hey

maybe you can get your money back up but

let me tell you any lawyer renegotiating

or debt restructuring generally only

gets a restructuring if Equity is given

up or underlying assets are shaved that

is maybe there's a debt restructuring

and the lenders take a haircut but

usually only if people with Assets in

the company take some form of a haircut

as well how much will that end up being

well depends on the extent of the

problems five percent ten percent fifty

percent who knows if either way many are

now suggesting that Celsius just gave

people their money back obviously I

imagine they would want to do that but

they probably don't have enough money to

pay off their debt and pay people back

this is despite the fact that they're

starting to pay people back at least if

you look at their blockchain activity it

does look like Celsius is starting to

pay off some of their debt but well and

then there's speculation that maybe

Celsius won't have issues until wrapped

Bitcoin hits a low of 14 000 which

hopefully we're far away from we're

sitting at you know just above 20 000

right now but hey you know we were

sitting above 30 000 not too long ago so

we'll see what happens anyway this is

creating a lot of fear and it's leading

other companies to collapse as well take

for example three AC one of the largest

crypto hedge funds supposedly with 18

billion dollars in assets under

management huge number by the way 3ac is

rumored now to also be insolvent meaning

they can't cover their Margin Call now

this is a rumor and there's no con

information yet however the CEO did

tweet or the co-founder did tweet quote

we are in the process of communicating

with relevant parties and fully

committed to working this out kind of a

cryptic tweet which again is Raising

fears that now the largest crypto hedge

fund is underwater now this company also

borrows from every single major lender

like block five Genesis and EXO and

Celsius and so if they're going

insolvent and they borrowed a ton of

money from let's say Celsius and they

can't repay Celsius while no wonder

Celsius would be having issues but this

also means all of the other platforms

could be having issues

this one Twitter user who's been pretty

uh detailed about providing information

called huddle Kryptonite at huddle

Kryptonite did give a hypothetical

example for 3ac they suggested that if

half of three ACS assets under

management went into Venture Capital

funds so basically money that's usually

locked up until like an IPO like five to

ten years out then that money is locked

up it's not liquid right so nine billion

dollars let's say goes into uh you know

again Venture Capital funds the other

nine billion dollars goes into let's say

liquid assets like Bitcoin well if they

did that in November they'd be down 70

on their liquid they'd literally be down

to 2.7 billion dollars barely enough to

probably cover margin calls depending on

how much they borrowed

and if you're losing 70 on the

Assumption of having been invested in

the safest asset

what happens if all of a sudden they

also had exposure to Terra Luna or dare

I say the shoot coins because presumably

if you're a crypto hedge fund you

wouldn't only be putting your liquid

into Bitcoin because hey you're a hedge

fund you should be able to find better

deals right anyway long story short the

best way to protect yourself is to make

sure that you have your hands on your

keys not your keys not your crypto

thanks so much for watching folks we'll

see in the next one bye