Celsius, Custody, And Crypto Lessons For Investors

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The calendar may have flipped to 2023, but the ripple effects of the disastrous year that was 2022 continues to be felt throughout the space. In a ruling affiliated with the ongoing bankruptcy of CelsiusCEL
, already complicated by the spectacular (and apparently fraudulent) collapse of FTX, a judge ruled that funds deposited into the Earn program belong to the estate (Celsius), and not the account holders. Judge Martin Glenn, in his decision, stated that the issue of ownership was a contract law issue, indicating that there was a valid contract between the account holders and Celsius that transferred all rights and title of digital assets to Celsius.

While the contract law, and contract itself in the case, might by unambiguously clear, the finding still sent shockwaves through much of the crypto space. Even investors that understood the risks of crypto investing (volatility, etc.) would be reasonable to believe that accounts they had established and funded belong to them. The reality that, once again, the terms and conditions of an exchange or lending platform have only been examined after a collapse, sent investors reeling yet again in the aftermath of the past year.

Specific organizations aside, there are several implications that are going to come out of the bankruptcies that are increasingly looking like the legacy of 2022, so let’s take a look at them.

Custody will be prioritized. This should come as an obvious point, but as exchanges and platforms across the crypto space failed in 2022, investors often learned some painful lessons. First, just because 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 firm only lends funds to reliable partners, does not mean that those statements are true. Cold wallets, or hardware wallets, have surged in popularity as a result of these events, but these are not perfect solutions either.

For investors seeking to use crypto as a medium of exchange, or even have easy and convenient access to funds on an everyday basis, hardware wallets can be a cumbersome solution at best. In the aftermath of institutional failures, court cases, and lawsuits against leaders of these firms that have been field, investors (rightly so) are concerned about who actually have control and ownership over assets. In 2023, investors are going to both receive a continuing education over who has custody over assets, and solutions that should be coming to market.

Insurance products are a must. Time and again, crypto lenders, exchanges, and other institutions have fallen afoul of regulators (and laws) by with claiming, alluding to, or hinting that products and services are supported, insured, or backed by some external third party. These claims and purported support are put forward because, in addition to other things, investors of all sizes normally do seek out and prefer some sort of backstop and protection. While it remains an open item as to how exactly cryptoasset products will be categorized, the fact remains that having some sort of backstop and support is essential to assist with the maturation of the sector at large.

Some cryptoassets, and especially some more of the speculative activity that had dominated the space in 2021 and 2022, tend to dominate headlines, but the institutional adoption of crypto will continue to lead adoption and implementation. Be it using stablecoins for payment purposes, allowing bitcoin and other cryptoassets to be included in 401k and other retirement plants, or other seemingly mundane use cases, enterprises and institutions continue to invest both financial and intellectual capital into blockchain and crypto use cases. This will continue, but in order to so in a sustainable manner – not to mention the appeal this will deliver for individual users and investors – insurance products are a necessity.

Compliance will become a priority. After the collapse of multiple organizations during 2022 the following fact become more evident than ever before; compliance and internal controls will become a front-burner issue for investors and institutions across the board. Even though blockchain and cryptoassets do create an immutable record that does not mean that cybersecurity, internal controls, and other compliance measures can be treated as an aside or minor issues. Rather, and reflecting the sheer scope and size of blockchain and crypto investments being made by organizations, securing and protecting these investments is critical.

Topics that rarely make headlines or drive the same buzzy conversations as price speculation, compliance, controls, and cybersecurity procedures are incredibly important for the sector moving forward. In addition to allowing better safeguarding of the investments made by individuals, a focus on compliance will also make conversations with regulators and policymakers (which are coming) able to be more productive and less antagonistic.

This coming year is set to be a pivotal one for the blockchain and cryptoasset space, and will be an important one for developers, poliymakers, and investors alike.



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