In the first weeks of 2023, news broke that the New York attorney general was suing Celsius founder Alex Mashinsky for defrauding investors by covering up his company’s poor position while continuing to accept their deposits.
Practically at the same time, however, a judge ruled that the $4.3 billion stuck in Celsius’ various interest-bearing cryptocurrency accounts belonged to the failed business, not its clients.
Taken together, these two announcements are confusing.
If Celsius clients were defrauded of their hard-earned capital, those assets should be returned to their rightful owners.
All fine print terms and conditions should be null and void if fraudulent.
Yet, as we saw during the global financial crisis, it is the users who bear the brunt of an institution’s financial collapse.
With the ruling on the ownership of the Celsius assets, the legislators have once again failed the public.
Let’s see how it goes now. If and when the trials of FTX co-founder Sam Bankman-Fried or Mr. Mashinsky proceed, we must hope that – if they are found guilty of defrauding millions of people – they will be given fair and just sentences.
However, we must be careful that innocent people are not dragged into the fray while lawmakers make a show of cleaning up cryptocurrencies.
We have to wonder why two of the three developers of Tornado Cash, the crypto-mixing service sanctioned by the US Treasury Department last summer, are being held without charge, while Mr. Bankman-Fried has been released on bail.
History repeats itself
It’s worth remembering that almost no one went to jail for the reckless behavior of global financial institutions that caused the 2008 financial crisis, which required a total of $3 trillion in government bailouts between 2008 and 2014.
At great cost to taxpayers, the very bank executives who caused the collapse walked away scot-free and continue to earn millions in bonuses to this day.
The cryptocurrency systems that fall upon us today are modeled after the same financial institutions that failed us 15 years ago.
So it’s no surprise that we see them collapsing in the same way, with eerie similarities.
However, we can at least expect trials for the founders who caused so much financial ruin after the FTX and Celsius collapses, which is more than can be said for anyone at Lehman Brothers, Fannie Mae and Freddie Mac, Wells Fargo, Royal Bank of Scotland, et al.
But in a worrying signal, we are now witnessing the US regulator going after a number of successful players in the cryptocurrency sector who were injured by the contagion of these disasters, as well as reputable platforms that survived the crisis.
See: What is Bitcoin and how did it start?
After circling Binance since late last year, the Department of Justice is now investigating ties to US hedge funds.
Similarly, Digital Currency Group (DCG), the owner of floundering crypto broker Genesis, faces investigations from the Department of Justice and the Securities and Exchange Commission.
DCG’s association with FTX and Binance’s position as FTX’s biggest competitor attract this regulatory scrutiny, and this has a detrimental effect on their customers’ confidence.
Binance, for example, is experiencing unprecedented outflows as a result, with $12 billion leaving the platform in less than two months.
Where is the punishment
Binance and DCG are not, however, and whose heads should be at an intersection.
Malicious characters at the head of FTX, Celsius, 3AC and Terra Luna are to blame for this, and we look forward to justice being served.
In the meantime, the cryptocurrency industry is building a better and stronger ecosystem unencumbered by the harmful cult of personality.
Cryptocurrencies — in pictures
The industry is still in its infancy. It did not have the luxury of centuries of trust building enjoyed by traditional financial institutions.
The events of 2022 are a big step back, but those truly committed to the cause will continue to build a system that is transparent, open source, immutable and consensus driven.
It will take time to build this industry to the point of mainstream adoption.
But it would be a far smoother and easier process for all involved if the global decision makers were on our side.
Blockchain technology and the ideal of cryptocurrency are not enemies here. The price should be paid by the people who abused the trust and fraudulently built billion dollar houses of cards.
Stefan Rust is the founder of Laguna Labs, a blockchain development house and former CEO of bitcoin.com
Updated: January 18, 2023, 4:00 am