Celsius, the problem with crypto

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

First of all, I would like to say something that I consider essential. It’s the idea that computing plus a basic human or technological activity is what generates enormous value.

Computer + calculation = Excel. Computers + writing = word processing. Computer + gossip = social media, etc.

Crypto is particularly powerful because it can be thought of as crypto = computing + politics. Money, governance, exchange, property, all of this is part of a range at the heart of politics. Obviously, money is at the heart of this.

It is therefore not surprising that the government is terrified of crypto and at the same time fascinated by it, even if it is still a small market on the scale of beer, for example.

So with this tension you have an arc of opinion from anarchy to authoritarianism, maybe even totalitarianism. At one end, one group thinks it should in no way be controlled beyond the code of cryptography, at the other end the outright outlawing of cryptography.

Proscription simply cuts off the enormous benefits of this revolutionary technology. The Romans banning machines to preserve the slave system is one example, and that’s probably the real reason their empire turned to dust. At the other end, the result of anarchy for all the efforts of its proponents to argue otherwise, is well, anarchy in the sense that most people use the word, a world where you and your property don’t you are not safe. Government normally sits uncomfortably somewhere between the poles and as such strives to regulate at an optimal point.

At this point, crypto regulation is practically non-existent. In many cases, it is being ruled out from being properly regulated by regulators too terrified to deal with the situation, making it nearly impossible for start-up companies to operate. This is a delaying tactic because blockchain technology coupled with encryption – the heart of crypto – threatens to topple so many rentiers that major economies cannot sustain a rapid emergence of crypto that could disrupt the status quo and destroy the beloved “stability”.

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The vaunted “disruption” by start-ups is not appreciated by the government. She can be loved by us but not loved when it is we who are disturbed. Anarchy-loving crypto fans are all free for all, but not so much when they get hacked or lose their shirt on a criminal scheme, and that clearly reflects the same dynamic with the government. People may complain about their government’s constant interference, but they rarely raise their sticks and go somewhere where their gun is the only thing standing between them and a bad outcome.

Crypto is in a regulatory pause and the question is which countries will seize the opportunity and which countries will ban?

Countries adopting crypto will have to be very smart to fix what is broken with the system and most of that work has to get the crooks out of the system without crowding out the public at the same time.

The entire Celsius (CEL), Three Arrows Capital (3AC) scandal is a perfect example of the problem that needs to be addressed. The solution now is liquidation, but the real challenge is a system that would allow such a project to work while being able to slide down the slippery slope of questionable practices. This slippery slope is the one that so many financial services companies are drawn to and this gravity comes from the fact that business has to compete with cheaters. Cheaters undermine appropriate businesses, forcing them to shut down or downsize what amounts to dumping.

Celsius was a DeFi platform that offered return on deposits and its default caused a lot of normal people who are desperate for that money to lose a lot of money. I avoided losing money in Celsius because their rates remained high while Compound’s were all but gone and BlockFi’s deposit rates fell sharply. It seemed that Celsius was trying to pull deposits from the more conservative DeFi platforms and the red flag got me off their platform weeks before Celsius implosed. Paranoia is a good substitute for luck.

This brings me to a point.

The Celsius token still has a market capitalization of $200 million. Gone is its usefulness as a token of a working business, so it’s worthless, but you can still sell it for cash. There can be no “good” reason why it trades millions every day and why a bankrupt project’s token is still worth more than 10% of its all-time high. It’s just the kind of dangerous anomaly that further discredits crypto, and it’s exactly the kind of problem regulators need to address.

The problems will be solved and, unfortunately, there will be a lot of bans. The smartest crypto regulators will be a huge boon to their economies, while makeshift regulators will be a strategic disaster. During this time, the crypto will transform.

However, until crypto is secure, it will not enter the mainstream and this may be the strategy of many regulators. They plan to keep the rules unfathomable, projects impossible to regulate while letting the crooks precede the public in an attempt to create an environment that retains the tech niche. It would be a very short-sighted tactic that would see countries that embrace crypto forge ahead economically with a tool that creates the essential element of economic progress, productivity.

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