I still remember waking up on 13 June 2022 and checking my crypto. What I saw felt like a punch in the stomach. Celsius had frozen all operations and especially withdrawals. I had gone in with a lot of funds and was constantly loading it up with more when suddenly overnight everything I had there was hanging in the balance.

• I had directly invested £1400 in staked StableCoin (DAI and USDC)
• Loaded it with all of my Noise:Cash BCH which equated to >3 BCH at the time
• Sent BitCoin from Cointiply there
• Sent much of my P0x earnings there in a variety of currencies
• Gained a reasonable monetary value amount of BitCoin through their referral programme

A month later Celsius filed for bankruptcy. It was hard pill to swallow, even if a couple of events did soften the landing a little bit for me. As I mentioned last week I had removed my BAT with the intention of profiting from a sudden surge in its price but never reloaded it because of the ridiculous gas prices. Secondly, a few weeks before it filed for bankruptcy, I removed $200 that the StableCoin had generated in staked interest. This did help.

I never really did look into what was going on there and where it went wrong, but I was actually impressed with how the Celsius was wound up by the administrators (that is what we would call them in the UK - liquidators in the US?). There was full transparency, clarity of communication and a realistic appraisal to manage customer expectations and finally a payout in BitCoin and Ethereum presumably based on a ratio between invested and recovered funds. 

I basically recovered what I had directly invested, but lost everything else so I think in the end I was one of the lucky ones.

So, now as the anniversary nears I have been wondering what really went on. I knew vaguely that there was a criminal conviction, but due to how the business was wound up I have often wondered whether it was a flawed business or a scam from the outset and today I am looking to unpack that very question.

But first who and what was the Celsius Network?

Celsius Network, founded in 2017 by Alex Mashinsky, was a centralised cryptocurrency lending (hence my last two articles) and interest‑earning platform. Celsius positioned itself as a better version of a bank: where users deposited assets such as BTC, ETH, and StableCoins into the Celsius app and earned high weekly interest—as high as 17–18% APY, while promising no fees. On the lending side it offered instant crypto‑backed loans and at its peak, Celsius managed ~$12bn in assets and had 1.7m users.

One thing that should have been a red flag was that users who transferred crypto into Celsius wallets, as stated in their terms and conditions transferred ownership of all deposited assets to Celsius; which in turn made users unsecured creditors in bankruptcy. While Celsius claimed that they were returning up to 80% of revenue to users via weekly interest payments, either in the deposited asset or in its own CEL token, they were otherwise engaged in what can only be called multiple high‑risk activities. Customer deposits were used to fund institutional lending to hedge funds, provide retail crypto‑backed loans, make DeFi protocol deposits to Aave, Maker, Compound, Anchor, etc and suppport a whole range of discretionary trading strategies. Furthermore customer funds were also used fo BitCoin mining operations. Celsius never publically admitted that they were engaged in such risky activities.

So where and how did it go wrong?

For a while the model worked, and that only served to add to its seeming legitimacy (especially because withdrawals were readily available), but only while crypto prices rose, borrower demand stayed high and their native CEL token maintained value. 

However, cracks appeared and then were torn asunder when the markets turned in 2022 and significantly impacted Celsius' liquidity. By the June, Celsius had sustained large losses from failed trading and DeFi positions among other things which had left a hole of $1.2 billion in their balance sheet. Left with no choice, as mentioned at the beginning of the article Celsius froze all withdrawals on 13th June, citing “extreme market conditions.” and exactly a month later on 13 July it filed for Chapter 11 bankruptcy.

This brought in the regulators, the U.S. Federal Trade Commission (FTC), who found that Celsius had falsely claimed it had enough assets to meet withdrawals, that deposits were insured, and that users could withdraw at any time — all of which were untrue, certainly once the model ran aground during the bear market of 2022. The FTC concluded that Celsius’s conduct an “old‑fashioned swindle” in that they had misled users about safety and liquidity, lied about insurance coverage and promised low risk while taking high‑risk bets with customer funds. The FTC concluded that these were not merely “honest mistakes” but that they were intentional misrepresentations.

Criminal charges were brought against Celsius and Alex Mashinsky, the CEO and Founder, in December 2024. The SEC charged them with systemic misconduct related to fraud, unregistered securities sales, false and misleading statements and market manipulation of their native CEL token. The Sec further uncovered that this had been going on for years with significant misrepresentations concerning the company’s health, risks, and business model. This reinforces as I said in the previous paragraph that the problems were structural and intentional, and not definitely not accidental.

Mashinsky pleaded guilty to commodities fraud and securities fraud and prosecutors uncovered the fact that he had lied about Celsius’s profitability, hidden losses, used customer funds to prop up the CEL token and secretly sold his own CEL at inflated prices The U.S. Attorney went on to day that it was “one of the biggest frauds in the crypto industry” and in pleading guilty Alex Mashinsky basically also accepted that Celsius, rather than being a “failed business” it became a “criminal enterprise.”

So to answer my question about whether Celsius was a scam from the outset or a flawed business the legal system has provided us with an answer. To some extent Celsius was both a deeply flawed business and a deliberate fraud. However a closer look at the evidence strongly supports the view that Celsius operated as a scam disguised as a high‑yield crypto bank, rather than an honest company that simply failed.

Maybe I am naive, but I rather think that Alex Mashinsky didn't set out to create a fraudulent company, but the monster became too much for him to control. I think it does say something about him that he held his hands up and pleaded guilty and the way he went about dissolving the company.

I hold no ill-will against him, but it has taken me until now to stablise my portfolio and get back into a position of growth.

Maybe the final word is the obvious red flag concerning any scam.

If something is too good to be true, it probably is!

As always stay safe and well my friends.