Coming into 2025 we find ourselves riding a cryptocurrency tailwind, with Bitcoin surpassing $100k, MiCA coming into the EU, and several new initiatives announced under the new U.S. administration. I thought to take this opportunity to reflect on one of the largest crypto collapses of 2022, the former “bank” of crypto, Celsius Network, whose former-CEO recently pleaded guilty to multi-billion-dollar fraud and market manipulation schemes.
This was one of the largest crypto collapses we’ve seen, with $4.7 billion crypto assets frozen from investors after they abruptly halted all withdrawals. While its slogan “unbank yourself” proved ironic when it appeared that Celsius succumbed to a common bank-run following the collapse of LUNA, parallel investigations by the Department of Justice (DOJ), U.S. Securities and Exchange Commission (SEC), and U.S. Commodity Futures Trading Commission (CFTC) subsequently revealed that there was much more happening below the surface.
Before diving into the fraud and market manipulation, let’s have a quick look at the rise and fall of Celsius. According to their archived website, which serves as a window into 2020’s crypto landscape, it all started on a coffee napkin in 2017. This evolved into a crypto asset platform that would custody customer crypto assets and allow them to earn returns on those assets or take loans secured by them. The platform’s main attraction was the “Earn” program, which allowed Celsius to invest the customer assets and reached a point of offering yields as high as 18%. By 2021, Celsius was estimated to hold $25 billion in assets; however, the CFTC filing would later cast doubt on that number
The DOJ case, which had a guilty plea last month, revealed two instances of fraud in the earlier timeline. Firstly, most of the business and risks were misrepresented. While we won’t go through all the false statements, the summary is clear: you weren’t getting a low risk 18% return. Shocking. The CFTC case gives a pretty thorough rundown of many misrepresentations. The SEC filing also includes some revealing employee messages ranging from “we don’t have any profitable services” to “the current business model is not financially sustainable” to the incredibly stark “there is no hope … there is no plan.”
The second part of the case revolves around market manipulation, which is a bit more complex. The manipulation relates to the Celsius proprietary crypto token CEL, and what’s interesting is how this was achieved. A portion of the interest (or rewards) to investors was paid in CEL, making it in Celsius’ interest to maintain CEL’s value at a high level. CEL was also traded on secondary markets, and the public perception of the business’ success was tied to the success of the CEL token. One employee wrote that “the higher” the price of CEL, “the more people understand Celsius is a legit company and will get customers.”
Celsius staff also devised a scheme to use its own OTC desk to help fund and hide the activity. Transactions on the Celsius platform were only reflected in internal records and not on the blockchain or to other users on the platform. The SEC filing states, “Celsius would sell CEL via the non-public OTC desk, and use the proceeds to turn around and repurchase CEL via public means and boost its price.”
This CEL would then be sold back onto the non-public OTC desk. In some circumstances, Celsius would strategically time the activity, where its public buying would push up confidence and the price enough for its non-public OTC selling to make a significant profit.
This case is a great example of the many layers of fraud and mismanagement that can exist in one company. On top of that, the manipulation portion shows the unique challenges and risks that arise when platforms issue and run their own tokens. These are challenges that we need to ensure are addressed in the new crypto wave.
