Notes 7/13: NFT As Collateral, Bitcoin Price, And Celsius

Because TradFi isn’t enough. Because DeFi isn’t enough. We now have the imaginatively titled NFTfi. The South Africa-based firm makes cryptocurrency loans using NFTs as collateral. NFTs or non-fungible tokens are digital artifacts for artworks currently but are expected to represent many other assets, such as real estate, in the future. They exploded in popularity during the pandemic, with some NFTs becoming worth as much as millions of dollars. NFTfi claims to have facilitated 13,000 loans using NFTs as collateral and has a total loan volume of $212 million since it began operations in 2020.

Forget the crash in NFT prices. Jeff Karas, a lawyer, told online publication Coindesk that lenders who use NFTs as collateral are people who “believe” in them. Their beliefs, unfortunately, will have to contend with the asset class’s staggering price volatility. Take the case of Jack Dorsey’s first tweet. A year ago, at the height of NFT mania, it was valued at $2.9 million. It received bids of as much as $280, when it was put up for sale in April. Famed auction house Christie’s sold Beeple’s NFT Everydays for $69 million last year. This year, its biggest NFT sale was worth $1.4 million. Imagine the margin call on these NFT collaterals.

The illiquid NFT markets have a pricing problem. An artwork is appraised based on provenance, technique, and a bunch of other factors. Similarly, real estate prices are determined based on criteria such as location and property condition.

NFT prices are derived from a patchwork of arbitrary criteria They might be determined by the market. Or they might be priced speculatively. Or they might depend on the type of asset underlying the NFT. The wild variations for NFT prices are a function of its so-called ‘decentralized’ method of connecting buyers directly to sellers. [‘So-called’ because the biggest NFT marketplaces are centralized monoliths].

Vermont’s Financial Regulator Wakes Up to Celsius’ Problems  

Almost a month after Celsius paused customer withdrawals, explored restructuring options, and began repaying its debts, Vermont’s Department of Regulatory Affairs seems to have woken up to the crypto lender’s problems. In a statement on its website, the department described Celsius as “deeply insolvent.” “The Department believes Celsius is deeply insolvent and lacks the assets and liquidity to honor its obligations to account holders and other creditors,” it wrote.

Apparently, Celsius is not authorized to operate in Vermont and was offering “unregistered securities” to customers. “If you are a Celsius customer, a bankruptcy filing could affect your investor rights and the value of your Celsius interest account balances. You should consult your own counsel if you have questions about your individual situation and how a bankruptcy proceeding could affect your investment in Celsius.”

One could commend Vermont’s DFR for being better late than never. Except, its warning seems to have had no effect on investors in Celsius’ token CEL. Its price was up by almost 5% to $0.7677, as of this writing.

Bitcoin Price Falls

Bitcoin price fell below the $20,000 mark this morning after news that U.S. inflation had hit a peak of 9.1%. The Consumer Price Index (CPI) figure released this morning foretells an economic recession and further monetary policy tightening by the Federal Reserve. Bitcoin’s slide mirrors that of broader mainstream markets and is indicative of growing correlation between both.

Amidst a crypto contagion in which some of the biggest companies in crypto have fallen by the wayside, the cryptocurrency’s price fell below $18,000 last month, a decline of roughly 75% from its Nov. 2021 price record of $68,991. The cryptocurrency has been in recovery mode since that low. But today’s figure might have set its price on a reverse spiral once again. Katie Stockton, managing partner at Fairlead Strategies, told Barrons that Bitcoin’s “downside momentum” was becoming strong and its price could go as low as $18,300. It also must contend with the twin challenges of a crisis in its ecosystem and a further weakening in the global economy’s fundamentals.

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