Celsius’s Risk Profile Is Over Two Times Higher Compared To A US Bank

At the time of its most recent financing, troubled cryptocurrency lender Celsius had an asset-to-equity ratio almost twice as high as the average US bank. The Wall Street Journal reported on Wednesday, citing documents sent to investors.

The platform’s last funding round, a $400 million one led by growth equity company WestCap in October of last year, gave retail investors the chance to earn rates of up to 18.6 percent on deposited crypto assets.

Due to market conditions, Celsius halted withdrawals and transfers earlier this month

The firms’ attorneys are currently pressuring management to submit a Chapter 11 bankruptcy petition.

The lender assumed significantly more risk than would have been the case with a regular bank, according to investor documents obtained by the Wall Street Journal. It issued enormous loans backed by scant collateral and, as of last summer, had $1 billion in equity and $19 billion in assets. According to the WSJ, this is significantly higher than the median assets-to-equity ratio for all North American banks in the S&P 1500 Composite index, which is close to 9:1.

According to the research, regulators often use this number as a risk indicator, and Celsius’s ratio is typical of a sizable bank that has access to central bank loans and typically owns considerably more stable assets.

“It’s just a risky structure” said University of Chicago economist Eric Budish of Celsius to the Wall Street Journal. “It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006” referring to a feature of the 2008 financial crisis. “It was all housing — here it’s all crypto.“

The WSJ reported that Celsius had predicted that deposits will increase and reach more than $108 billion in 2023. The company had also predicted that in 2023, revenue would reach $6.6 billion and Ebitda would increase to $2.7 billion.

Considering the state of the market, Celsius is not the only company struggling. In response to liquidity problems, BlockFi, a fellow lender in the sector, received a $250 million line of credit from FTX. According to reports, the Bitcoin exchange is also in talks to buy the troubled lender.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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