Crypto collapse: Coinbase’s billion-dollar bloodbath, Hodlnaut goes down, Celsius, Voyager, 3AC

By Amy Castor and David Gerard

“It’s like the Bermuda Triangle for cash … which if I’m not being clear, means you should invest!” — LifeSunDeath, SomethingAwful



Coinbase is not having a good time

The few crypto exchanges that deal in actual US dollars are the cashier’s desk at the crypto casino. Earlier investors in crypto can only cash out using fresh dollars coming in from later investors.

The recent disasters in the crypto market mean that a lot fewer aspiring suckers are lining up to throw their dollars down a hole. That’s a problem for the whole crypto economy — and especially for Coinbase, the biggest actual-dollar exchange.

Coinbase’s SEC 10-Q filing for the second quarter of 2022 puts on a brave face — but they’re in trouble. [Coinbase 10-Q; WSJ]

Coinbase posted a $1.1 billion loss for Q2, down from $1.6 million in profit a year ago. This was Coinbase’s second consecutive quarter of losses — they lost $500 million in Q1.

Coinbase has $10 billion in cash, but $5 billion of that is customer deposits — and $4.6 billion flowed out in Q2. Coinbase needs real dollars flowing in.

The customer assets are flowing in the other direction. “Assets on platform” (mostly cryptos, some cash) totaled $256 billion in Q1 — but only $96 billion in Q2. $248 million in customer stablecoins was withdrawn from Coinbase just on July 15 — half the stablecoin holdings as of that day. [CryptoSlate]

9 million customers made even a single trade in Q2 2022 — down from a peak of 11.2 million in Q4 2021.

The retail crypto trade generated nearly 95% of trading fees on Coinbase in Q2. We expect Q3 to be much worse for Coinbase.

There is no FDIC insurance or capital regulations to protect depositors’ crypto. If Coinbase files for bankruptcy, all of the assets it holds for customers will be lumped together with the company’s assets as property of the bankruptcy estate. You’ll be just another unsecured creditor, watching in horror as the bankruptcy lawyers suck up hundreds of millions of dollars in fees to sort out the mess.

David was on BBC World News talking about the Coinbase 10-Q filing. “The lack of retail dollars is an ongoing disaster in crypto.” The sound and video are terrible, but the words are excellent. [YouTube]

Coinbase’s line is that all this is “cyclical.” This is a claim that asset bubbles are just how crypto does things, and there’ll be another bubble in due course. Sure there will — if regulators don’t step in and clean up the mess from this time around.

Coinbase slipped into its 10-Q a disclosure that the SEC is probing its staking programs, adding to the ongoing probes of its process for listing new crypto-assets. Not to mention the separate SEC suit against ex-Coinbase employees saying that some cryptos on Coinbase were unregistered securities. [Bloomberg, archive]

Coinbase was already getting rid of its affiliate program to cut costs. [Business Insider]

Coinbase’s program to take your paycheck in crypto hasn’t worked out so well for the customers either. [Mel]


Hodlnaut is a CeFi platform with offices in Singapore and Hong Kong. It’s frozen withdrawals, token swaps, and deposits, as of 8 August. Hodlnaut is working with Singapore law firm Damodara Ong LLC on a restructuring plan: [Bloomberg, archive; Hodlnaut blog, archive]

We apologise that we are unable to facilitate any withdrawal of funds at this juncture. We believe that this will provide us with the necessary breathing room to explore potential restructuring options and recovery plans with our legal advisors.

Hodlnaut launched UST and Luna on its platform on 6 April. [Hodlnaut blog; archive]

When Terraform Labs’ luna and UST collapsed in May, Hodlnaut suspended swaps on luna and UST and wrote: “Hodlnaut is NOT all-in on UST as one particular rumour on Reddit has mentioned. This is a false claim.” It turned out not to be a false claim — Dirty Bubble Media noted on 26 June that Hodlnaut had suffered a massive loss in UST.

Hodlnaut offered a 7.25% annual yield on your crypto. They claimed to have $500 million in assets under management — though that was really just $500 million of liabilities to customers for assets that were now owned by Hodlnaut. What they have now is $500 million of liabilities and an unknown, but much smaller pile of assets.

Don’t worry, you’ll still earn interest on “your” funds! Even if it’s only numbers on a website and not, you know, realizable in any sense:

Yes, Hodlnaut will continue to pay out interest earned according to these rates every Monday until further notice. This is so that Hodlnaut can balance the need to be fair to users and minimise our liabilities.

Hodlnaut had received in-principle approval from the Monetary Authority of Singapore for its token swaps in March. The MAS has now rescinded the approval, and issued a warning that investing in crypto is “highly hazardous.” Hodlnaut has withdrawn its license application. [Bloomberg, archive]

Hodlnaut took down its team page. If only there was an archive! [Hodlnaut, archive] The company also deleted its YouTube account, and co-founder Juntao Zhu has set his Twitter account to private.

Zhu and Simon Lee founded Hodlnaut in 2019. The firm received $100,000 in funding from Antler, a Singapore VC, in June 2021. [Antler]

Celsius is bankrupt, but the boys gotta be paid

Bankruptcy proceedings are all about claims. The debtor wants to discharge its liabilities, and the creditors want to get paid. The question is: which creditors get paid first?

As part of its reorganization plan, the bankrupt company needs to include a classification of the claims and specify how each class of claims will be treated under the plan.

Secured claims generally get paid before unsecured claims. Secured creditors hold a lien against the debtor’s property, while unsecured creditors don’t have any form of collateral.

But secured creditors aren’t secure just because they control the collateral. Unsecured creditors and their lawyers often comb through loan contracts searching for errors that can invalidate the “perfection” of a secured claim.

The problem is that in US bankruptcy law, it’s uncertain whether you can establish a security interest in crypto assets. Crypto is new, and there’s no precedent for “perfecting” security with crypto collateral — “your keys” does not mean “your coins.”

If you’re a secured creditor and the collateral is crypto, you may find yourself getting in line with all of the other unsecured creditors.

Stablecoin issuer Tether loaned Celsius $840 million in USDT backed by bitcoin, and then sold the bitcoin Celsius loaned as collateral just before Celsius filed for bankruptcy. Lawyers are squabbling now over whether Tether really was a secured creditor or not.

One of the things that will be examined in court is whether or not Tether was fully secured. Did Tether properly “perfect” its security in its collateral?

In the meantime, the legal wrangling could reveal things about Tether it’s been trying to keep hidden for a long time. [Doomberg, paywalled]

Everyone who Celsius paid anything in the past 90 days is also worried about clawbacks in bankruptcy, and insiders have to worry about payments as far back as a year — though there’s no news on this front.

A group of about 300 creditors who held crypto in Celsius custody accounts have joined forces and hired the law firm Togut, Segal & Segal to represent them for a $100,000 retainer. They aim to file a motion before a decision is made to lump their funds in with Celsius Earn customers. They’re also fundraising for legal fees. [Coindesk; engagement letter, PDF; GoFundMe]

Frances Coppola notes that neither Voyager nor Celsius was ever a custodian, properly speaking: [Twitter]

They are shadow banks. This misuse of the term ‘custodian’ is related to the equally egregious misuse of the term “assets under management” for uninsured deposits in crypto shadow banks. Voyager and Celsius don’t have any “assets under management.” People who placed crypto with them have lent it to them to do with as they please. These shadow banks DO NOT manage people’s money for them. There are no “client funds” and the crypto is not “in custody.” (This means the average Joe’s deposit on these platforms is unsecured.)

The Celsius unsecured creditors committee has released its first official statement. It is “committed to thoroughly investigating Celsius, including potential misconduct by Celsius and its insiders” — and in particular, CEO Alex Mashinsky. ​​[Bankruptcy filing, PDF]

Celsius wanted to rehire Rod Bolger as CFO to help it navigate the bankruptcy proceedings. Bolger was the CFO who replaced the previous CFO Yaron Shalem in January 2022, after Shalem was arrested in Israel in November 2021. Bolger wanted about $93,000 a month, prorated over six weeks, to get the job done. [Motion, PDF; Blockworks].

Days later, a formal objection was submitted by Keith Suckno, a CPA and Celsius investor who challenged the move, saying that “little detail” was given for why Bolger’s services were necessary to the bankruptcy proceedings. Celsius decided Bolger’s services were no longer needed. [CNBC; Stretto, PDF]

In a similar vein, the Bankruptcy Trustee has objected to Celsius’ wage motion over a lack of adequate information. The trustee is even considering whether to hire an examiner to figure out what the heck is going on — signaling serious frustration with Celsius’ lack of transparency: [Stretto, PDF]

Specifically, on August 8, 2022, the Debtors provided to the United States Trustee a list of the recipients of noninsider severance payments (not filed) where several of the recipients are receiving severance payments that exceed the statutory limits. Even more troubling is that some of the recipients receiving payments in excess of the Statutory Cap worked at the Debtors for less than six months, with one recipient set to receive $20,769 in severance payments when the employment period was only from June 6, 2022 until July 11, 2022 — a mere 6 weeks. The Debtors should be required to explain the basis for these payments and why the Statutory Cap should not apply.

Mashinsky cashed out on a pile of his CEL tokens after the crypto lender’s token surged during a short squeeze. Alto on Twitter was the first to spot the transactions. [CoinDesk; Twitter]

Can Celsius mine its way out of debt? LOL, of course not. David Rosenthal writes: “It is likely that the 37,218 rigs Celsius has sitting idle are the older, less efficient and thus less profitable ones. I would expect that, in bankruptcy, Celsius will struggle to keep mining, let alone ramp up to 120K rigs. Instead, they will need to sell rigs to raise cash.” [blog post]

Ripple Labs is talking up buying Celsius’ assets. Ripple is also being sued by the SEC over its cryptocurrency, XRP. [Reuters]

Public records and interviews with people who know Mashinsky paint a picture of a brash, confident serial entrepreneur — in the most derogatory senses of those terms. [WSJ]

Voyager Digital

Hurry and get your claims in! Voyager Digital creditors have until 5 pm ET on 3 October 2022 to submit their claims. Governmental units have until 5 pm ET on 3 January 2023. [Order, PDF]

Good news for some Voyager creditors! Judge Wiles has approved the return to Voyager’s customers of $270 million in cash held at Metropolitan Commercial Bank. [WSJ]

In its initial bankruptcy presentation, Voyager Digital said that it had $350 million held in its For Benefit of Customers account at Metropolitan Commercial Bank. It’s not clear what’s happening with the other $80 million. [Stretto, PDF]

Voyager said it will resume access to in-app cash withdrawals starting 11 August: [Voyager, archive]

Requests will be processed as quickly as possible but will require some manual review, including fraud reviews and account reconciliation, and timing will depend, in part, upon the individual banks to which customers transfer their cash. Once cash withdrawals are enabled, customers can withdraw up to $100,000 via the app/ACH in a 24-hour period.

Voyager’s CEO, Steven Ehrlich, sold $31 million of Voyager stock (VOYG.TO) in early 2021, as shares hit their peak of $34.35. [CNBC]

After Ehrlich dumped his shares, VOYG.TO went on to lose 98% of its value in the lead-up to Voyager’s bankruptcy filing. It closed at $0.33 per share on its last day of trade.

Last month, Sam Bankman-Fried’s FTX made an offer to buy Voyager with cash and offer early liquidity on customers’ bankruptcy claims. All creditors had to do was set up new accounts on FTX. Voyager pooh-poohed the offer.

In a court hearing on 4 August, Voyager attorney Joshua Sussberg boasted that Voyager had received multiple bids above FTX’s offer. He didn’t disclose details of those bids. [Bloomberg Law, paywalled]

FTX and Alameda Research had deep ties to Voyager Digital and its bankruptcy wipeout, going back to mid-2021. In its first day presentation, Voyager said that Alameda had borrowed $377 million from Voyager. Meanwhile, Voyager’s financial documents show that Alameda may have borrowed as much as $1.6 billion in crypto from Voyager — though the market downturn soon made it worth much less. [CNBC]

A class action lawsuit has been filed against crypto investor Mark Cuban and Voyager CEO Ehrlich over Cuban’s promotion of Voyager. The suit calls Voyager a Ponzi scheme. Perhaps Cuban was ill-advised to call Voyager “as close to risk-free as you’re gonna get in the crypto.” The suit was filed in Southern Florida by The Moskowitz Law Firm. [CoinTelegraph; complaint, PDF]

A partnership between Voyager and the National Women’s Soccer League was meant to give players an important lesson in crypto. And it has — all their money is gone. [Sportico]

Three Arrows Capital

Remember Tai Ping Shan Capital — the OTC desk where most of 3AC’s treasury was reportedly held? They issued a statement in July saying they were independent of 3AC. [Twitter]

The latest news: TPS executive Stefan Chu abruptly quit. His Twitter now refers to him as “ex-TPS.” He apparently doesn’t want to be associated with the firm. [The Block]

Other innocent victims of CeFi

There’s probably an exchange somewhere that didn’t play the CeFi markets with customer funds. Right?

Babel Finance, the Hong Kong-based crypto lender that froze withdrawals in June, lost 8,000 bitcoin ($280 million) of customer funds by trading with it. [Bloomberg, archive]

Coinshares is another crypto firm that lost money in Terra-Luna. London-based Coinshares reported a loss of $21.7 million from its exposure to UST. [CoinTelegraph]

Coinflex says it’s cutting staff to deal with the hole in its accounts. They had staff? Coinflex has also filed for restructuring, as it seeks to recover $84 million from Roger Ver. [Coinflex blog, archive; Bloomberg]

Zipmex, based in Thailand, shut down withdrawals on 20 July. They cite “volatile market conditions.” More specifically, Zipmex had a $48 million loan of cryptos to Babel Finance and $5 million to Celsius, both of which went up in smoke. Zipmex has filed for bankruptcy protection in Singapore, where it’s incorporated. [Thailand SEC, in Thai; The Block; CoinDesk; Nikkei]

Lesser-known Hong Kong-based futures exchange Bexplus announced on 5 July a $5,000 bonus for new traders! It also offered a wallet with 21% annual interest, 100X leverage on margin trades, and copy trading! Sadly, Bexplus shut down without warning two weeks later, on 18 July, “due to force majeure.” They gave users 24 hours to get their cryptos out. Wonder if anyone did. [press release]

Police in Guangxi, China, shut down crypto exchange AEX on 17 July. AEX began limiting withdrawals a month ago due to a bank run. Withdrawals were enabled for some extremely minor altcoins — but never for the more popular cryptocurrencies. But “Due to cooperation with the police investigation, the platform has suspended related services… Please wait for the police announcement.” AEX also wrote below the signature in their post: “The closer you look, the further you see.” [AEX blog, archive]


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10 Comments on “Crypto collapse: Coinbase’s billion-dollar bloodbath, Hodlnaut goes down, Celsius, Voyager, 3AC”

        1. we also said originally that Antler had put $100m into Hodlnaut when it was actually $100,000 so, er, errors happen

  1. David… In reading this short analysis there are a few things that jump out screaming from the words:
    *People are greedy
    *People are stupid
    *People are suckers
    Crypto is nothing more than a huge “nothing for something” Ponzi scheme
    driven by conmen and suckers


    1. I’ve been describing it as an inverted pyramid, where the point of the pyramid rests on a box that turned out to be full of hot air (USDT). The box collapsed, and so everything above it is collapsing too.

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