Bitcoin ‘bank’ boss fighting for his reputation after triggering crash
By Ben Woods
While Alex Mashinsky may be caught in the eye of a crypto meltdown, his personal website shows little sign of struggles.
Alongside a biography that describes the co-founder and chief executive of crypto lender Celsius Network as “born into communism, reared under socialism and is currently thriving under capitalism″, are an array of family snaps portraying domestic idyll.
Pressure is building on Celsius boss Alex Mashinsky. Credit:Bloomberg
Interspersed between pictures of Mashinsky plugging business triumphs are personal shots of his wife, Krissy, and their six children. It exudes a strong effort to plump the serial entrepreneur’s image as a successful cyber currency mogul.
Mashinsky’s reputation was cast in a less flattering light this week, however, after the millionaire became the central figure of a crypto downturn.
On Monday, Celsius halted all withdrawals from the Bitcoin “bank” following what it described as “extreme market conditions”. In a blog post, the five-year-old company said it was taking “necessary action for the benefit of our entire community in order to stabilise liquidity and operations”. In other words, the accounts of its claimed 1.7 million retail users - including in the US, UK and Israel - have been frozen until further notice. It has rattled the entire crypto market.
Bitcoin, the world’s biggest digital token, hit a year-and-a-half low at $US20,834 on Tuesday, having dropped a further 10 per cent, after cryptocurrencies already shed $US100 billion of their value on Monday. The sell-off was worsened by Binance, the largest crypto exchange globally, which temporarily halted trading in Bitcoin over a so-called “technical error”.
Mashinsky, 56, now faces a battle to protect the reputation of Celsius, and stop the crypto chaos spiralling further. It is not the first time he has endured tough times, or criticism.
Born in Ukraine, but raised in Israel, Mashinsky founded companies such as Transit Wireless and Arbinet to mixed success in the telecoms sector.
On his website, Mashinsky admits to “many failures”, including a “decision to leverage two of his ventures with debt” during the 2008 financial crisis that “turned disastrous”.
“We are currently sitting on a time bomb. This is because a lot of money held in stablecoin is not collateralised.
Billionaire fintech investor Viktor Prokopenya
Despite this, Mashinky, who now lives in America, has remained focused on becoming a self-made man. In an interview with Foundr in 2018, he said he gave up wanting to work for someone else after struggling to make ends meet as a parking enforcement officer. He has even cast himself as a Robin Hood figure determined to disrupt the status quo through the decentralised systems underpinning Bitcoin. “The barons of the internet - the Facebooks, the Googles who control the data and are just giant toll collectors - are squeezing so much out of the system that everybody’s looking for a way to replace them,” he told Foundr. “Decentralisation is the only way to replace them.”
Ahead of triggering a crypto crash this week, Mashinsky exuded confidence. When asked on Twitter over the weekend why he had many enemies, he reasoned: “because I am winning and giving it all to my community”. Celsius, launched in an attempt to disrupt the big banks, is his biggest triumph to date.
Pegging itself as helping investors achieve “financial freedom”, it lends out cryptocurrencies borrowed from customers to make a return, offering yields of as much as 18 per cent.
While Mashinsky has milked the media attention surrounding the rapid rise of Celsius, the company has also attracted some unfavourable scrutiny.
Last November, it suspended its former chief financial officer, Yaron Shalem, after he was arrested by Israeli police on suspected fraud allegations linked to cryptocurrencies.
Crypto markets have been battered this week.Credit:Getty
In a tweet, Celsius, which has around 200 employees globally, said it did not relate to his time or work at the company and “no assets were misplaced or mishandled”.
While its crypto assets under management grew to as much as $US24 billion ($34.9 billion) by last December, that dropped more than 50 per cent to roughly $US11.8 billion in May after a plunge in digital token prices took its toll. It has also gained a reputation for making aggressive bets with depositors’ money. Some $US2.5 billion has been withdrawn since March.
Given cryptocurrency’s ongoing tilt towards mainstream adoption, the implications of the ongoing turmoil are serious. A third of UK consumers have owned, or still own, cybercurrency in May, up from 29 per cent in October, according to research by Coinbase, which operates a crypto exchange.
Under plans by the Treasury, the Bank of England will take control of collapsed companies offering “stablecoin” - digital tokens pegged to a currency - to stop a crypto crash derailing financial stability.
Viktor Prokopenya, the billionaire fintech investor behind VP Capital, fears the latest crypto slide risks an evaporation of trust that could prompt a financial disaster. “We are currently sitting on a time bomb,” he says. “This is because a lot of money held in stablecoin is not collateralised.
“Some reserves do exist, but existing banking regulations rightly designed to prevent money laundering mean they can be difficult to cash in. Nor are they necessarily backed by real assets.
“They are based on trust, and trust can evaporate all too quickly. What we know from history is that if too many try to cash in, we will see a 1930s-style ‘run on the bank’ or a collapse similar to the 2008 subprime mortgage crisis.”
The latest sell-off will add fuel to criticisms that crypto remains a risky investment given the instability and lack of regulation in the market.
Not only Mashinsky, but his wife may now be among crypto holders worrying what the future might hold.
According to a tweet from October 2020, her husband gave her 15m Celsius tokens (CEL) worth $US20 million for her 50th birthday. He wrote: “I gave my wife @KrissyMashinsky a very special present of 15,000,000 CEL tokens for her very special birthday.
“She has been with me through it all and always supported me even when I made silly mistakes.” Mashinsky will be hoping for the same understanding from crypto investors, as he seeks to rebuild his empire’s reputation in the eyes of the financial world.
Telegraph, London
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