Goldman Raising $2B to Buy Distressed Celsius Assets
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They seem to have completely different mechanics, aside from failing within a month of each other there is almost no other mechanical similarity between these situations.
A troubled company's balance sheet usually looks like:
Assets: A Mess
Liabilities: A Mess
None of the claimholders (liabilities) know what they can withdraw, when, etc. A "buying asset" bailout often happens when someone (like Goldman here) comes in to buy only the gross assets. They will pay $2 bln in cash for the assets, and divorce the two messes. The two companies afterwards are now:
NewCo:
Asset: A Mess
Liabilities: None, other than their new single equityholder, Goldman.
OldCo:
Asset: $2bln
Liabilies: A Mess.
NewCo is controlled by one person (or a tight group) and can unwind its positions slowly at leisure, waiting for prices to go up, with no more (financial) liquidations.
OldCo has a much easier time. All creditors are called to line up in order. A judge decides who is most senior. The senior most people go collect their money (chunk of $2bln first). People queue up until the money is gone. In the highly unlikely case there is any money left after all claims are paid, the money goes to the old Celcius equityholders.
1)Startup founder gets and idea and develops it.
2)The startup develops the tech and finds a market for it
3)The Startup becomes successful
4)The market falls apart and the founder can't guide the startup thru the difficulties
5)Start up is in distress or fails
6)An MBA type comes along buys everything at a deep discount
7)The new manager restarts the company. This time with much more discipline and a plan on how to sell the product.
8)Company becomes successful enough to be sold or go public.
9)MBA guy multiplies his investment. Startup guy gets the shaft.
We are going to see this cycle in crypto. Right now, MBA types are looking for any companies that are falling apart but have a future. Looks like Celsius is one of them.
> Ballmer joined Microsoft on June 11, 1980, and became Microsoft's 30th employee, the first business manager hired by Gates
> [Ballmer] left the MBA program at Stanford University
Ballmer is what Marisa Mayer was (or vice versa). An employee that latched onto a rocket. What made the company successful wasn’t them but the founder. By the time you can hire the 10th employee, risk is already greatly reduced.
However his focus on enterprise laid the seeds for 365 and Azure and flourished once Satya made it clear that not everything had to revolve around Windows and Office. I think Gates is also a bit to blame here as I think the story goes that almost every decision that came to the board was shot down unless it meant more windows/office sales
In other words sole-founders have missing skills which are likely to be exploited by those who have those skills.
Perhaps this implies that a founding team with a mixed skill set (creation, sales, business) will likely have long-term better outcomes. Perhaps it implies that sole-founders would be well advised to pay for competent advisors in the areas they are weak.
Whatever people might think of Zuckerberg, one thing for sure, he's smart enough to know that he doesn't know everything and should ask for help. Many founder's ego just won't let them do that.
1) Startup founder gets an idea and develops a legitimate product.
2) The company gains some customers, but the growth is tough, since competing products often sell below cost.
3) The founder gives up and goes to VCs.
4) VCs take away the controlling stake in exchange for an endless stream of cheap money, so the company can start selling dollars for 90 cents just like the competition.
5) The founder's vision is no longer a critical asset, the cheap VC capital is. The founder gets pushed out and replaced by the VCs' protégé.
6) If the stars align, the (still unprofitable) company exits. Numerous retail investors buy shares in something they've heard about but don't fully understand. VCs get 100x returns. The founder gets a letter of appreciation.
The whole cycle is all about getting a bigger share of the endless stream of cheap money from the fed. VCs throw in a lump sum to buy visibility. Enough visibility guarantees that more people with extra freshly minted cash on hand will choose your shares over other speculative investment.
Except all that recently printed cash is now competing for wheat and baby formula (hence inflation), so the fed has no choice but to backtrack and raise interest rates. And if this holds for sufficient time, the whole VC game may suddenly stop paying off.
Your digression into the link between stimulus cash, baby formula, and inflation seems somewhat less accurate.
Firstly, baby formula (and wheat) are not luxuries. The amount of formula you need is 100% based on your baby, which neither knows no cares how much cash you have. My guess is its the first thing a mother buys, not the last. So excess cash, or lack thereof, has no impact on demand.
If demand is stable, that means inflation is caused by constrained supply. Which is exactly what has happened year - close a factory producing significant % of supply, and supply drops.
The same with wheat. No one is buying extra bread with their extra bread. But global wheat supply has been affected by the Russian invasion of Ukraine.
Yes, extra cash can contribute to inflation, and no doubt that has had some effect, but between the war, and the pandemic the primary inflation seems to be caused by supply issues. And oil. The war drives up the oil price, and that knocks on to everything.
I would mostly say yes but keep in mind that money does make the world go around. Meaning that greed sparks ideas, products and services that keeps us from going back to a society that survives having or providing nothing to spare beyond the basic necessities.
It's not pretty but it's what's kind off working now.
Their required collateral when making a loan is 4x in cryptoassets. This means the collateral is not enough after a 75% drop.
Yet Bitcoin dropped 80% every 3-4 years or so.
https://studio.glassnode.com/metrics?a=BTC&m=market.PriceDra...
MBAs notoriously do not fix things. They usually run them into the ground.
Sometimes VCs will replace founders with experienced execs to try to control costs before a sale, but I haven't seen examples of this where they fix the product or find the market fit. They usually just fire people and try to get the financials to look better.
I would be beyond furious if I couldn't withdraw my assets from this scam.
https://someunpleasant.substack.com/p/economists-do-they-kno...
Like the weather system, every molecule of air and water behaves "deterministically". And yet, we can predict no more than a few days, may be a few weeks at most, with any real accuracy. This is the hallmark of a chaotic system (aka the error in prediction grows exponentially).
Laws need to be bad enough violence may feel better.
Sounds like there could be ramifications beyond the usual crypto "aww shucks, the money's gone, what can you do lol".
Losing money in cryptocurrency is a first-world problem, no one is going to commit violent acts over losing their side/play money.
A lot of people are not fine, they just didn't feel the full ramifications for their actions, yet.
That you somehow believe everyone losing money to investment scams is responsibly investing only an appropriate portion of their side/play money tells me you know very little about this space.
Let's flip the question: what reasons do you have to expect "violent acts against people running these companies"? Sure, you have a bunch of people that are angry, but makes you think they're angry enough to follow through with the plan? Was there a spree of violence against bankers in 2007/2008?
My working assumption is that there will be some breaking point or a triggering event where people just had enough.
There's plenty of violent acts driven by various reasons, I guess I am surprised we have yet to see "vigilante" type act against people of power.
https://en.wikipedia.org/wiki/Goldman_Sachs_controversies
So, no, there is no "only care about money" exception for distrusting them.
Interestingly, in 2008 there was somebody recommending their clients buy shares that they were selling themselves. I misremembered and looks like it wasn't them. Now I'm curious what investment bank was it.
From the opinion: This was accomplished by Citigroup's misrepresenting that the Fund's assets were attractive investments rigorously selected by an independent investment adviser, whereas in fact Citigroup had arranged to include in the portfolio a substantial percentage of negative projected assets and had then taken a short position in those very assets it had helped select.
Opinion: https://casetext.com/case/us-securities-exchange-commission-...
Yes, that is indeed how Goldman makes money.
Interesting times coming if there are more issues with USDD and/or tether.
Why?
FYI most funds have always been holding crypto, bitcoin in particular gives a better yield over any traditional asset in the world over a 10 year period, consistently over 30 years.
Crypto is hilariously tiny compared to the actual world of finance. SPY (a single ETF) does as much dollar volume in a single 7.5 hr trading day as the entire crypto market does in 24h, and the entire crypto ‘market cap’ is worth less than half of Apple, one company.
https://news.ycombinator.com/item?id=31869856
But what's Goldman's play here? To pump crypto after buying?
A few wall street firms have started to recommend Crypto as an investment. Goldman probably sees a future where their clients will have crypto assets so they see a future in controlling some of the infrastructure. We'll see more of these types of deals.
I'm sure they would love to control Coinbase but it's too expensive to own, now.
It's too bad it's attached to scams and grifters.
IMO you said it perfectly and it's worth emphasizing for programmer types:
> The one thing of value that crypto actually delivers [...] is atomic multi-party transactions across unrelated parties.
I wouldn't say it's the one/only thing though: Ethereum builds a trustless computation platform on top this core primitive, which I think is pretty fundamental and impressive (especially when you consider Vitalik Buterin was 21 when he created it, and already had a long career of writing for Bitcoin Magazine; in particular this article from 2014 criticising Bitcoin's centralisation: https://bitcoinmagazine.com/business/opinion-on-mining-14032...).
Imagine if you could rent mining hardware, IaaS-style, and there was enough available to control a majority of the active hash rate. An attack that lasted a few hours would not be particularly expensive.
It’s easy to assume that Bitcoin, Ethereum, etc are technologies that work as advertised and that the only interesting questions are weather the tokens on the respective blockchains are useful and/or valuable. But the blockchains themselves have critical requirements for proper functioning, and they can easily fail.
(For Ethereum in particular, you can rent GPUs on fairly large numbers. A change in the economics could easily make it possible to rent a majority of mining power on AWS or similar platforms. At least Bitcoin hardware is mostly useless for anything other than Bitcoin mining.)
You need gigantic investment to accomplish it now and it's not even a sure return and by the time you're constantly successful with your attack, the market has figured the network is taken over for the price to go zero to move over to another coin.
Then you're left with crazily invested factories, mining a worthless coin.
Your assumptions are missing the simple idea that if there's a room to be profitable, they'll mine that themselves than somehow let them stay idle for someone else to rent and start a massive attack.
The hash rate is actually going up during this bear market.
They should drop once they can't mine profitably for a while but so far not the case.
https://www.blockchain.com/charts/hash-rate
You cannot possibly own half of that hash rate to yourself unless you're some state level actor wasting tax on it thinking wasting billions (even then, you can't just order million ASIC units overnight) today to kill Bitcoin is better than some future they see with Bitcoin but then again, people can fork Bitcoin to form another base cryptocurrency, and their effort could become a complete waste.
The only few ways Bitcoin can kill itself is that either people fail to see its usefulness or that some severe unfixable security flaw is found.
People say crypto has no intrinsic value but its uncontrollable existence is the value itself.
But it's ok for those people to keep missing the boat to see bright friends make killings.
When will they try to answer the simple question that how crypto is still around after 13 years with constant price increase?
Can atomic swaps happen in a centralized system? If so, does that still count as cryptocurrency?
There are a huge number of stock exchanges today that all trade the same products with slightly different exchange features. Do you think they're going to be inclined to cooperate with each other to make atomic swaps work across exchanges?
To take a cut on their investors buying some assets from a drowning company at a steep discount.
Their terms have this language:
> Eligible Digital Assets held in a Custody Wallet are subject to the other provisions of these Terms, unless where expressly stated otherwise. Celsius retains the right to set-off any Eligible Digital Assets in a Custody Wallet against any obligations you may have to us.
> You understand and acknowledge that the legal treatment of Digital Assets remains unsettled and may vary depending on the jurisdiction in which you reside. In the event that you, Celsius or any Third Party Custodian becomes subject to an insolvency proceeding, it is unclear how your Digital Assets would be treated and what rights you would have to such Digital Assets.
> Celsius does not make any representation as to the likely treatment of Digital Assets in your Celsius Account, including those in a Custody Wallet, in the event that you, Celsius or any Third Party Custodian becomes subject to an insolvency proceeding whether in the U.S. or in any other jurisdiction. You explicitly understand and acknowledge that the treatment of Digital Assets in the event of such an insolvency proceeding is unsettled, not guaranteed, and may result in a number of outcomes that are impossible to predict reliably, including but not limited to you being treated as an unsecured creditor and/or the total loss of any and all Digital Assets reflected in your Celsius Account, including those in a Custody Wallet.
If you give your money to something that looks like a bank, walks like a bank, but is not actually a bank, don't expect them to be held to the same legal standards as a bank.
The assets are likely coins or stablecoins at a deep discount to market (80%+).
Assets in this context means loan contracts between Celsius and its borrowers.
When a finance company GLC (Great Lending Company) makes a loan of $100K to a borrower Joe it deposits $100K in Joe's account in exchange for Joe signing a contract (lets call it LC) that stipulates interest rate, repayment terms etc., On GLC's book the deposit of $100K becomes its liability and LC becomes asset.
Now, GLC could also offer deposit services with attractive interest rates. The deposits needn't (and often do not) equal loans made. If inflows into GLC's reserves match outflows it typically works OK. In an economic up-cycle (low interest rate, positive consumer sentiment etc.,) everyone is happy. But when those assumptions change (usually high interest rate) some of GLC's borrower's begin to default. And it take just a fraction of borrowers to default for GLC to become insolvent. At the first sign of trouble GLC's depositors take their money out, popularly called a bank run. It thus depletes GLC's reserves making them take measures such as pausing withdrawals.
At this point GLC has 3 options.
1. Borrow; they could use their assets (i.e., LCs) as collateral.
2. Sell their assets at a discount.
3. Go bust.
This is where companies like Goldman come in. In a bankruptcy firesale they scoop up GLC's assets at steep discount. GLC could have assets worth $10B (i.e., it has made loan contracts worth $10B). A big chunk of those loans could be bad. But even if say 70% of them are bad Goldman could make a hefty profit of $1B by buying $3B of assets by paying $2B. The risk is at this point no one knows what those loan contracts are really worth. It takes quite a bit of time and effort to untangle these loan contracts that were made during boom time. GLC won't have neither of those resources in times of distress. So GLC and Goldman make rough calculations and agree on $2B price. It may turn out to be worth 0 (highly unlikely) or $5B or somewhere between. But either way it's highly likely that Goldman stands to make good profit out of this firesale. Because they have a robust balance sheet and resources they could wait out for years to recover from borrowers.
I had been expecting steeper dips so I missed that 600% flip.
Not exactly my perfect storm for buying a dip, I usually wait for an information asymmetry in my favor, but shoulda just taken a slightly smaller position.
I was just watching this one so closely to begin with
Just be sure to check liquidity depth and current network transaction fees beforehand