As the market melted in the past weeks, I wondered if my coins were safe. A key question for all of us investors.
So I thought about the exchanges and DeFI websites that I’m using: Coinbase, Celsius, Nexo, Blockfi and wondered: are they safe ?
Trying to find an answer to that, I went looking for news on their exposure to the crash, to the Luna meltdown, the UST de-pegging, the wider bear market …
I found very little….and decided to take action. I moved all my coins to cold storage.
Let me explain why.
The market meltdown hit hard
With the Luna meltdown, heavy selling pressure was put on Bitcoin by the LFG, as they tried to sustain the UST algorithmic stablecoin. With the subsequent UST de-pegging, things went berserk.
Terra Luna price went straight from $90 mid April to $0.0001381 as of writing, wiping out around $40bn of market value.
The $16bn TerraUST algorithmic stablecoin was depegged from the dollar, it is now worth $0.08495. That sent a shockwave across crypto markets, as investors started questioning all stablecoins, a cornerstone of the digital assets space.
A number of large players were severely impacted :
- Mike Novogratz, CEO of Galaxy Digital, is said to have lost around $6bn. He was a champion of TerraUST and Luna
- Do Kwon, the CEO and founder of Terraform Labs, creator of Luna and TerraUST, got some severe heat from this market catastrophe, not mentioning wealth lost
- Michael Saylor, CEO of Microstrategy, probably lost more than $100m in a week
- Coinbase founder Brian Armstrong, saw his wealth (mostly in Coinbase stock) go down from around $13bn in November 2021 to $2bn more recently
- Changpeng Zhao (CZ), the CEO of Binance, is estimated to have lost around $84bn in a few months, a perfectly staggering number.
We’re basically talking about a $1 to $1.5 trillion crypto market meltdown. And no one really knows where that stops given the wider economic backdrop made of inflation, rate hikes, war in Ukraine, supply chain disruptions and China lockdowns.
So what’s the news from exchanges ? Let’s dig in.
News from exchanges is not that great or transparent
Seeing the mess, I started looking for info or communication from my exchanges on their exposure to these events.
I was disappointed… but not totally surprised. Communication in times of market turmoil is very sensitive. If you send out bad signals, that can become a self-fulfilling prophecy, sending markets lower.
So let’s take a look at what info we have on a few key exchanges and DeFi websites that I’m invested in.
Coinbase is impacted by the market turmoil, but ruling out bankruptcy
The Coinbase stock price action has been dreadful recently, with a massive 78% drop in the past 6 months and 84% since their first day of trading.
The income report for Q1 was disappointing and prospects of returning to profitability are low in the short medium term.
Coinbase also announced that a bankruptcy would wipe out user funds. That was a form of mandatory compliance statement, and does not mean Coinbase is going broke. But it just reminded us that our coins are absolutely not protected in case a bad thing happens.
At Coinbase you do not hold your private keys. Hence if the exchange goes down, there’s nothing you can do to pull them out.
I don’t think Coinbase is fundamentally at risk in the short term. Armstrong said on Twitter “there is no risk of bankruptcy”, and their balance sheet seems quite robust.
But things unwind at such speed that you cannot rule anything out. Ask Lehman Brothers…
The Coinbase annual meeting of stockholders will be held on June 1st, I recommend following the info that comes out of there.
Celsius CEO is reassuring, but there’s no concrete evidence on its solidity
Despite reassurances from Alex Mashinsky, its CEO, info came out that the value of assets deposited at Celsius has halved since the beginning of 2022, going from $24bn to $12bn. That’s not a very encouraging sign.
Sure, Celsius is a big player, with 1.7m customers, it’s one of the leading Crypto lending platforms out there. But there’s a question around Celsius’ real exposure to the LUNA debacle. Alex Mashinsky waived it in this tweet.
Celsius also seemingly pulled out half a billion dollars from the Anchor protocol, as experts monitored some wallets belonging to Celsius and known for having deposited over $500m worth of ETH in the past months.
Since March, the net outflows from Celsius seem to be topping $1.1bn.
Celsius also has its own token, CEL. And the price action hasn’t been great, CEL going down from $7 in May to less than $1 recently.
Finally, a few things to remember concerning Celsius:
- It is not a listed company
- They do not publish financial statements
- No auditor reports are available, although we know they are audited by NLP
- In Dec 2020 Chainalysis did an audit to confirm funds, nothing since
- Celsius does not have an insurance policy, but Fireblocks, their custodian, provides insurance on digital assets
Overall, I would say that although management seems reassuring we have no real way of knowing. And when we do, it might be too late.
I pulled out (see how further below).
Nexo say they have no exposure
Nexo communicated extremely little, despite numerous calls from investors who needed reassurance.
There is absolutely no proactiveness from Nexo’s side, apart from saying they are monitoring. Check their Twitter feed, it is an endless marketing thread of products and services (lending, nexo card,…).
The only thing I could find was this info, on Nexo delisting LUNA…
Nothing around exposure to UST, safety of funds, etc… which is absolutely not reassuring.
Like Celsius, there is no financial information available on Nexo.
The only info you can access is related to compliance, explaining that Nexo is registered with a number of regulatory bodies. That never made anyone immune from a meltdown…
So I wouldn’t give Nexo a very good grade on transparency either.
I pulled out from there also.
Blockfi wasn’t any better
Blockfi is backed by some serious names and investors (Galaxy, Morgan Creek, Bain Capital, Three Arrows Capital,…).
But they are not listed, so they do not disclose financial information to the public and there’s no way of checking their financial health.
The only info I could find regarding the LUNA / UST meltdown was a post by their Community Manager on Reddit saying Blockfi has no exposure to LUNA or UST and continues to trade as usual.
That’s both reassuring and a bit short.
So as a conclusion, all of these DeFi lending websites are the same. They are VC backed so not listed. Financial Information is not publicly available and their communication is scant.
So It’s up to us to measure and appreciate the risks and make our own decisions.
I made up my mind and decided on a defensive move.
I decided to act and moved everything offline, I simply will not take the risk.
It’s ok for me to lose some lending rewards, that’s a small price to pay versus the safety of my coins.
How I moved my coins to Ledger in 10 easy steps
So I moved all my holdings offline to cold storage (a Ledger Nano X hardware wallet), the only place where they are really safe from all the turmoil.
When your coins are in a hardware wallet they are basically protected from hacks and safe from your exchange going broke.
Just what I needed in such troubled times.
Ledger is probably the most reputed maker of hardware wallets out there. They receive nothing but praise from their Nano line of hardware wallets.
You have several to choose from, the Nano S, Nano X, etc… They’re all good, offer different capacities and functionalities but to secure a few coins offline the entry level Nano S will do just fine.
So here are the 10 easy steps you need to take to move your coins offline:
Step 1: Buy a hardware wallet (mine is Ledger Nano X).
Note : If you click the affiliate link above, I will get a small commission, no impact on you, it’s just a nice way of thanking me for the content :-).
Step 2: Activate your Ledger Nano by downloading the Ledger Live interface on your PC or laptop (also doable on mobile)
Step 3: Set the 8 digit password (VERY CRUCIAL STEP)
Step 4: follow the procedure related to your 24-word Recovery phrase. This is the most important step you take. There are several verification stages, follow them carefully. NEVER store these 24 words online or take a picture of them, just find a safe physical place to store the sheet.
Quick tip: if you want to be extra safe, you can ask two family members or close relatives to each store 12 of your words, that way even if you lose the paper you still have a way to recover your wallet and no one has the whole picture. It’s also safer for them, knowing they can’t blow the whole thing up individually.
Step 5: your wallet is setup, now install the necessary “apps” related to each coin you want to transfer (BTC, ETH, …)
Step 6: Time to send your coins. Click on ‘Receive’ on the left menu bar of Ledger Live.
Step 7: Select the coin you want to transfer
Step 8: Carefully write down the address you will need to send your coins to
Tip: if you’re transferring BTC coins, that address changes at each transfer. This is normal, don’t panic, if you’re sending from an exchange with a 24hr whitelisting the address remains valid and yours forever.
Step 9: Go to your exchange and send the coins to the address you obtained on the Ledger Live
Tip: to be extra sure you’re using the right address, you can start by sending just a small amount
Step 10: check
Now you can relax and watch the world crumble as your coins stay safe.
If Ledger goes bankrupt your coins remain safe, they are stored on the Blockchain, and you own the private keys. They can be recovered with any compatible wallet. So you are absolutely safe.
So that was the reasoning behind my move to offline mode. You can never be safe enough in the crypto sphere.
Until things are fully in place and banks are able to offer real custody of coins, you have to be very prudent and act by yourself.
Cold storage is your only way to make sure you won’t get hacked or taken away if your broker goes out of business.
I decided to play it safe, and I must admit I’ve been sleeping much better ever since 😊.
If you enjoyed the review, you can buy me a coffee … 😉
More crypto articles to take things further:
- My Guide to Generating $1k/month Passive Income with Strong, Thor and Yieldnodes
- How Safe and Sustainable is Yieldnodes?
- The 12 Best Node Investors to Follow
- 10 Security Tips for your Crypto, How to Avoid Metamask Hacks
- Does a VPN really protect your crypto trading, Node Projects od DeFi Investments?
- Who is dumping or shorting Bitcoin, where is the bearish pressure coming from? Who are the BTC enemies?