Bitcoin falls, Celsius insolvency risk grows, and parallels to the 2008 recession: CNBC Crypto World
A new platform aims to let political candidates fundraise with cryptocurrencies and as another crypto company struggles to stay afloat. How big of a risk is the crypto winter to the broader economy? Music, welcome to cnbcs crypto world im, mckenzie sagalos crypto prices are in the red again today with bitcoin trading at around 20 000. ethereum trading at around 1100 and polygon trading at around ‘ cents. Crypto initially rallied yesterday after the us federal reserve, chose to raise interest rates by three quarters of a percent, but that rally was short lived. Investor sentiment is still shaken by the collapse of terra and the uncertainty of crypto lending platform celsius more in celsius. In a moment, but lets talk about a couple of other top stories. First, a new crypto platform is launching next month to let political candidates raise money in crypto. The platform is called, engage raise and it will let candidates fundraise and hold events for crypto donations. Its all part of the growing involvement of crypto in politics, crypto executives, have already donated more than 30 million dollars to u.s candidates. Since the 2020 election cycle, and just recently, bitcoin investor eric finman donated 20 million dollars to gop candidates running in this years. Elections. Next weve talked about crypto exchanges, cutting jobs during the crypto winner, but kraken is doubling down on its hiring efforts, though prospective employees have to agree with the companys new policy on culture. According to the new york times, kraken ceo jesse powell circulated a document in the company titled kraken culture explained now in it, the company told employees to refrain from calling comments, toxic hateful, racist and more.
The report also details online conversations between powell and employees, where powell questioned preferred pronouns, who was allowed to use racial epithets and differences in intelligence between men and women for employees who disagreed with the companys culture. Kraken offered four months pay as they looked for another job. In response to criticism from some employees, powell tweeted that the company welcomes all finally lets talk a little bit more about celsius. Research, firm keiko says the crypto lending firm is running out of ways to stay solvent. The firm said that poor risk management, bearish market conditions and an ethereum derivative created the perfect storm that derivative is known as st eth or staked ethereum its been selling at a discount and that spells trouble for the platform. Keiko sees few options for stabilizing the business celsius may have to sell a significant amount of ste this collateral, and even if the business does stabilize public opinion of the company may be permanently damaged. So as the losses mount in crypto this week and more businesses struggle with staying afloat, how much of a risk is this crypto, winner to the broader economy? I spoke to economist, joshua ganz at the university of toronto to find out. We saw yet another sell off in the crypto market this week. Some are now asking the question: could there be a contagion effect from crypto to the broader us economy? Obviously thats a very big question so lets parse it out, starting with the big banks.
How exposed are they really to crypto? At this point, i doubt theyre very exposed. Uh theyre certainly been uh banks and other financial institutions who expressed interest in uh crypto as an asset and as an asset that they might like their customers to also be able to invest in, but in reality, uh. There isnt that much of that investment going on banks have their own set of regulations and their own need to make sure that things are uh appropriate investments. So i dont think weve seen the sort of exposure to that than weve. Seen in other financial crisis. Can you explain why crypto being tied to debt is so key when we talk about its broader impact beyond the industry itself? Yes, for some of the more traditional asset classes, you can hold those assets and their value is expected to stay moderately stable over some period of time. That means you, just if you just by owning those assets, you can put them up as collateral to uh. Borrow money uh using that uh them as collateral. What you havent seen with crypto assets, simply because of their volatility uh! Is that same process by which youre able to use it to buy other uh real world assets or more traditional financial assets and borrow off off that basis? Now, of course, people have used cryptocurrency to buy borrow uh for other cryptocurrency, but thats sort of contained in the crypto world. Now lets move on to the impact for the retail trader.
There are some concerns that the money weve seen wiped out this week will translate to less spending in general, which could then hurt the economy. Is that kind of concern totally overblown or is there something to it? I dont think theres a huge amount there uh. You know because the crypto world is is said to be a three trillion: dollar asset class was, and now its a less than a trillion dollar asset class um. Of course, it was never really three trillion dollars because, of course, you couldnt borrow to finance spending on it and things like that uh, so that was never quite the same impact, but really its not thats, a very small drop in the ocean of all the assets. You know once you once you bundle up stocks, bonds houses, those sorts of things uh. This is this is really nothing in terms of that, in fact, the bigger impact is the broader impact currently of the stock market, which is also uh depreciating in value. So you said that right now, essentially, all were seeing are paper losses. Can you explain what you mean by that? Well, uh, if you had a cryptocurrency that was worth several uh billion dollars, uh one of the lesser known ones and all of a sudden it dropped to. You know a fraction of that um a small fraction. It was never the case that all of the people could have suddenly sold all their cryptocurrency holdings and got those several billion dollars.
It was simply the act of selling would have caused the depreciation itself, so we have to make a very big distinction in these sorts of nascent markets between the total amount of value at the current price, pretending as if everybody could sell and what would really happen. If everybody sold and those are very different things and in the crypto world, that means that you know i know we call them paper value which is kind of ironic in this now but uh. It really is paper value, theres, not much. You can do of it. If you hire an individual holder and you sold at the top of the market, then youve definitely got money in your pocket, but not everybody could have done that. Are there any parallels to be drawn between what were seeing happen now, and the housing market and subprime mortgage crisis of 0.708 obviously were talking about an asset class its, as you said, worth less than 1 trillion versus u.s housing market thats around 43.4 trillion dollars? So theres a big difference there, but are there any any parallels we should be looking out for? I think there are some parallels. I mean certainly the lack of transparency uh, some of the misunderstanding and mispricing of risk. That, probably is at the heart of some of these uh transactions and and beliefs. Uh is, is a commonality. You know that all financial crises of some kind share um, but in in in this situation the crypto world has been sort of hived off from the the rest of the economy.
Um as much as a you know, a casino might be yet sure some people might lose some money, but it wont be in such a big aggregate manner that would cause uh repercussions throughout the real economy. Suddenly people curtailing spending on building and other things. That said, right at the moment, thats happening anyway, uh its just not the crypto thats, causing it crypto seems to be part of the show there. Interest rates are going up, which means that people move out of those riskier assets into the less risky assets, because theyve got a higher rate of return. That applies to stocks. It applies to cryptocurrencies and, i think, were seeing some of the same things now. What happens if crypto becomes more of a thing whether thats the i mean one of the aspirational goals of the industry is for bitcoin or another major cryptocurrency to become the worlds reserve currency. But even if we see adoption hit the kinds of levels and some people say that it will, how big a risk to the economy is it then i mean there are no guard rails, really, no central entity that can uh they can print cash to shore up The economy, so what are we looking at? In that scenario? Yes, there is a sense in which the aspirations of uh cryptocurrency enthusiasts are to get to the stage of importance whether they could cause a global financial crisis and, of course, we could never rule that out.
Uh, but one of the processes of getting to that point is uh getting the sort of stability the regulations housed around it uh the understanding of what the market really is, so that it wont be that same sort of uh catalyst for risk. So, in other words, we shouldnt equate a world where cryptocurrency is important and has the same amount of inherent instability uh as something thats a likely scenario. If it turns out to be important, it is because cryptocurrency has become more stable and acceptable and also in some sense de risked from exactly what were seeing right now.