Crypto

Celsius, Custody, and Crypto Lessons for Investors

The timeline may have shifted to 2023, but the ripple effects of the disastrous year that was 2022 continue to reverberate throughout space. In a decision related to the current bankruptcy from celsius
CEL
, already complicated by the spectacular (and apparently fraudulent) collapse of FTX, a judge has ruled that funds deposited into the Earn program belong to the estate (Celsius), not the account holders. Judge Martin Glenn, in his decisionstated that the issue of ownership was a matter of contract law, stating that there was a valid contract between account holders and Celsius that transferred all right and title to digital assets to Celsius.

While contract law, and the contract itself in the matter, might be unambiguously clear, the discovery still sent shockwaves through much of the crypto space. Even investors who understood the risks of crypto investing (volatility, etc.) would reasonably believe that the accounts they created and funded belonged to them. The reality that, once again, the terms and conditions of an exchange or lending platform have only been reviewed after a meltdown has rattled investors again in the aftermath of the past year. .

Specific organizations aside, there are several implications that will arise from bankruptcies that look more and more like the legacy of 2022, so let’s examine them.

Custody will take priority. This should be an obvious point, but as exchanges and platforms across the crypto space have failed in 2022, investors have often learned painful lessons. First, the mere fact that a website or press release states that an organization is safe, or like a bank, that customer funds are segregated from other funds, or that the company only lends funds to reliable partners, does not mean that these statements are true. Cold wallets, or hardware wallets, have gained popularity following these events, but they are not perfect solutions either.

For investors looking to use crypto as a medium of exchange, or even to have easy and convenient access to funds on a day-to-day basis, hardware wallets can be a cumbersome solution at best. In the wake of the institutional failures, lawsuits and lawsuits against the executives of these companies who have been on the ground, investors (rightly) are concerned about who actually has control and ownership of the assets. In 2023, investors will receive both ongoing education on who has custody of assets and what solutions are expected to come to market.

Insurance products are essential. Time and again, crypto lenders, exchanges, and other institutions have violated regulators (and laws) by claiming, alluding, or implying that products and services are supported, insured, or backed by an external third party. These claims and purported support are pushed forward because, among other things, investors of all sizes normally seek and prefer some kind of safety net and protection. While there remains an open element as to exactly how crypto-asset products will be categorized, the fact remains that having some sort of safety net and support in place is essential to help to the maturation of the sector as a whole.

Some crypto-assets, and in particular some of the speculative activity that had dominated the space in 2021 and 2022, tend to dominate the headlines, but institutional adoption of crypto will continue to drive adoption and Implementation. Whether it’s using stablecoins for payment purposes, enabling the inclusion of bitcoins and other crypto-assets in 401k and other retirement factories, or other use cases apparently mundane, businesses and institutions continue to invest both financial and intellectual capital in blockchain and crypto use cases. This will continue, but to do so in a sustainable way – not to mention appealing to individual users and investors – insurance products are a necessity.

Compliance will become a priority. After the collapse of several organizations in 2022, the following fact has become more evident than ever; compliance and internal controls will become a priority issue for investors and institutions at all levels. Even though blockchain and crypto-assets create an immutable record, that does not mean that cybersecurity, internal controls, and other compliance measures can be treated as secondary or minor issues. On the contrary, and reflecting the scope and size of blockchain and crypto investments made by organizations, securing and protecting those investments is critical.

Topics that rarely make the headlines or spark the same heated conversations like price speculation, compliance, controls and cybersecurity procedures are extremely important to the future of the industry. In addition to providing better protection for investments made by individuals, the focus on compliance will also make conversations with regulators and (upcoming) policymakers more productive and less adversarial.

The coming year is expected to be pivotal for the blockchain and crypto-asset space, and will be important for developers, policymakers, and investors.

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