Celsius solvency survey results

Rumors and speculation abound as to the fate of Celsius Network and its depositors' assets.  To cut through the noise, on June 18, 2022, we posted a survey at several Celsius-focused discussion forums asking commenters what they thought about Celsius's financial state.

Crowdsourcing has been shown to reveal interesting information in the past, as the success of prediction markets has shown.  This survey did not disappoint.  While we had expected that it might contain a lot of spam and garbage responses, only a few of the responses were obviously troll-worthy, and we were able to discard them easily.  Additionally, respondents were required to sign up for an account and solve a captcha, so it's likely that someone who went through that trouble would also respond truthfully.

While the sample size of 50 was moderate, there appears to be some statistical significance on a few of the questions.  Hopefully future surveys about this and other topics can garner more responses to increase their fact-finding power.  In the future, as this blog becomes more widely read, we also hope to be able to better randomly target respondents.


Summary of the findings

The 14-question survey asked respondents about topics related to Celsius and closed on June 21.  Anyone, even those who did not have any deposits at Celsius, was able to respond.  Here are some statements which the survey shows have a decent level of confidence:

• Celsius investors do not believe Celsius is even remotely solvent.
• Nevertheless, they have an optimistic timeline for when they will receive at least some payment.
• Opinions on management are strongly polarized but people seem resigned to support current management.
• The respondents are profoundly bearish about the near future for bitcoin; only two believe the price bottom is in.

Solvency

Posts on twitter and reddit tend to be from depositors who believe that Celsius is only slightly underwater, and mainstream media articles focus on Celsius's "halting of withdrawals," rather than how probable it is that Celsius is insolvent.

Celsius investors, however, have no illusions about the current situation.  They believe that Celsius is deep underwater, with only 50.85% of their assets remaining on June 18.  However, they remain optimistic that they can eventually recover 50.09% of what they deposited. 

In a bankruptcy court, recovering so close to the value of assets available is unheard of, and as you see below, a majority of respondents do believe that bankruptcy is not the most likely outcome for Celsius.


Money lost

TV analysts continually caution people to not own more than a small percentage of their net worths in cryptocurrencies, but Celsius customers do not follow that rule.  While it might have been expected that Celsius's payment of transaction fees would attract low-income customers, only 22% stand to lose less than $10,000 in the Celsius crisis.  With the average household owning about $40,000 in stock value, the value of savings locked up at Celsius is a significant portion of the average respondent's net worth, and the failure of Celsius will likely have significant impacts to their standard of living.



PROHASHING was one of the respondents who answered in the $250,000 to $499,999 category, but there were two other respondents that stand to lose more than a quarter million dollars, and one who stands to lose more than half a million.


Timeline

Celsius depositors were optimistic about the timeline for receiving payments from Celsius.  However, the answers were logical, thought through, and consistent with the other responses that each respondent provided.  The calendar below shows the dates when the average respondent believes that Celsius or its bankruptcy trustee will distribute funds.



The median dates were significantly sooner, with the median respondent expecting a statement on July 1, a payout on September 15, and all funds having been distributed one year from today (on June 20, 2023.)  The average dates on the calendar were pulled far into the future by a number of respondents who (like PROHASHING) provided dates in the 2030s for the final payout, as 2031 would be in line with the timeline for the Mt. Gox bankruptcy case if all of Mt. Gox's claims were paid today.  One respondent expected the Celsius case to drag on until 2040.


Trust in Celsius

Many may be surprised to learn that a majority of respondents, despite misgivings about past wrongdoing, believe Celsius managers the best people to manage the current situation.  When asked who Celsius was looking out for while trying to call loans and recover money, only 39% believed that Celsius was ignoring its depositors' financial interests.



The belief that Celsius management should continue to work through the crisis was also revealed when respondents were asked what Celsius should do to recover, rather than asking (as in the last question) what the company was actually doing.  Here, almost 8 in 10 respondents believed that the current management should resolve the crisis.  Of those respondents, approximately 40% believe that the current path will yield results, another 30% or so believe depositors should be offered an option to withdrawal what is left and move on, and another 8% believe that customers should be given whatever coins Celsius currently has, even if they are not what was actually deposited.



When asked to rate their faith in management on a scale of 1 to 7, the result was below average, at 3.19.  Therefore, it may be that many depositors have little faith in Celsius management, but still believe they are better than any of the other options.


Bailout

Celsius depositors are optimistic about a potential bailout.  In fact, only 44% believe that "nobody" will bail out Celsius.  The question about potential bailouts was heavily time-dependent.  Earlier respondents were overwhelmingly pessimistic, with the first answers all believing that depositors were on their own.  The most recent responses before the survey closed all believed that Nexo or another lending firm would bail Celsius depositors out, perhaps suggesting that information has come to light during the time the survey was active that is leading some to believe a bailout plan will be announced.





Wrongdoing

Respondents are not optimistic about the future for Celsius CEO Alex Mashinsky, as they suspect significant wrongdoing at Celsius.

One of the more surprising findings, at least for me, is that the majority of respondents believe that Mashinsky has been involved in criminal activity.  When asked whether Mashinsky will be indicted, a majority of respondents suggested that Mashinsky committed crimes.  They have little faith in the justice system to hold him accountable, however, with only 23% believing that enough evidence exists to convict Mashinsky.  The largest number of respondents believe that the "beyond a reasonable doubt" standard is too high to prove that Mashinsky criminally mismanaged their funds.



Several months before Celsius closed withdrawals, it was leaked that police were investigating a high-level Celsius employee in Israel for money laundering, perhaps causing some respondents to wonder whether Mashinsky was involved.  Mashinsky also looked pale, rattled, and anxious as he obviously read a carefully scripted statement on June 17.

Only 19% of respondents believe that Mashinsky will completely escape all liability for his actions at Celsius, so if they are to be believed, Mashinsky has a long battle ahead to avoid jail and personal bankruptcy.


Effects on the wider industry

Respondents agreed with my previous post about Celsius that argued that because 20 times as much money is involved at Celsius than at Mt. Gox, and because an entire generation of far greater than 1.7 million investors, their employees, their families, and their friends will lose faith in lending and perhaps cryptocurrency itself, the impact of Celsius's failure will be much more severe than the failure of Mt. Gox.  They believed that the next cycle has been set back by an astonishing 19.51 months compared to when the industry would have otherwise recovered.  Unfortunately, the wide range of responses, and the arbitrary range cap of 1-48 months that we imposed, reduced the statistical significance of this result.

I will ask this question again in the next survey to try to collect more responses and reword it to try to obtain greater confidence.  If the answer holds, companies like Ledn, Genesis, Nexo, and others involved in lending might take warning about the far-reaching impacts to their business model from Celsius's failure.  During the Panic of 1907, JP Morgan saved the banking system at great cost to itself because they similarly recognized that their own customers would withdrawal and never trust any bank again, even though JP Morgan was itself in good financial shape.


The crash is not over

Only two respondents believe that the current cryptocurrency crash is over, having answered values between $17,600 and $18,800, the latter of which was the price at the time the survey was released.  When asked how far bitcoin's price would fall in 2022, the average response was $12,569.16. 

We excluded what we deemed to be nonsensical values of zero.  Of the remaining 45 respondents, the values were clustered into three ranges.  The first cluster included ten respondents who believed prices would bottom between $8,000 and $9,000.  Another cluster exists around $12,500, which would likely result from a liquidation of Celsius's WBTC holdings at their margin call price of $13,600.  Finally, a number of respondents believed the bottom would be around $16,000.


Conclusion

In conclusion, respondents, and especially those who were Celsius depositors, were optimistic about being repaid quickly.  A majority do not believe the case should or will be settled in bankruptcy court.  While they disapprove of current management, they still believe that management is trying to recover their money and is best equipped to resolve the crisis.  They also believe that someone will bail them out.

A majority of respondents agree that Alex Mashinsky was involved in criminal activity at Celsius, and their belief that Celsius lost half their deposits may be a result of that belief.  If they are correct in their assessment of criminal or civil liability, Mashinsky will not emerge unscathed from the crisis.

Finally, respondents generally believe the worst is yet to come, with bitcoin to lose another 45% of its June 21 value of $21,200.  Additionally, while the "cycle delay" question's wording was flawed and the responses too varied to be statistically significant, there are warning signs that Celsius's failure will reduce faith in lending and set back the industry for a long period.


Next survey

With the success of this survey, I created a new one at https://s.surveyplanet.com/l18fwqrn.  If you enjoyed this post (or even if you did not,) please consider filling out the next survey so we can continue researching attitudes about interest-earning platforms.