Crypto exchange Celsius ‘is a classic example of lacking liquidity,’ blockchain advisor explains

Delta Blockchain Fund Founder Kavita Gupta joins Yahoo Finance Live to discuss bitcoin dropping below $24,000, crypto companies pausing withdrawals, and market liquidity.

Video transcript

- Crypto tokens are related stocks tanking today, with Bitcoin falling below 24,000. Let's break down today's crypto action with Kavita Gupta, Delta Blockchain Fund founder and general partner. So Kavita, we're a far cry from when we saw Bitcoin hitting 68,990, that 52-week high back in November of 2021. Now, we remember the crypto winter that followed that. How does what we're seeing now compare with that?

KAVITA GUPTA: First of all, thank you for having me. We are back to the crypto winter. I think we have been expecting it, at least the people who have been in the space for a long time, earlier this year. But we saw a little bit spike at the numbers hovering around, especially for Bitcoin, around 30k from January, February, approximately, because of the war in Russia and Ukraine.

And now we are into a crypto winter for quite some time, right before we saw a bullish market. And I think this is really expected for the market to go up and down. And I think the hue and cry are from the people who have been looking at it more from a speculative way and day-to-day trade than actually to believe in the technology for the long run.

- So we had some headline shock today, totally unrelated, but first there was Binance, which temporarily paused transactions. They are now back online after what they called a stuck transaction. But the big news was Celsius platform suspending withdrawals. What does that do to the market? And does it call for further regulation?

KAVITA GUPTA: I think regulations are always-- I think are always welcome, right? We do need regulations to make sure that people understand what they're getting into and people understand how volatile the space still is. Said that, Celsius is a classic example of lacking liquidity. It's a liquidity issue. People who invested in Celsius expecting 16% to 18% return, Celsius was always vocal that they are taking that money and using it as a hedge fund to manage it into different assets. And they did that by dropping ETH and sticking it into the proof of stake at SETH for the ETH platform.

And of course, then there was a big panic when there was a huge withdrawal of SETH which took away the liquidity. And then everybody tried to get their ETH out when it was 0.95 versus 1. And as a classic banking problem between lending and borrowing, it just went to the place where there is more people tried to take money out than what they have liquidity for.

- Well, Kavita, when you take a look at what did transpire today, I think a lot of investors or people that either if they were thinking about buying into crypto or hold some crypto look at this pretty alarmingly because they're saying, if this could happen, what does this mean for future investments? What does this mean for the growth of this space? As someone that's invested in this space, how do you weather these types of headwinds when you take a look at the fact that this needs to be-- needs to go more mainstream in order to generate that type of adoption that you're hoping to see?

KAVITA GUPTA: I think for people like us, we have seen it. We saw ether prices going all the way up to 2,000's back in 2017, December, and '18, early 2018. And then we saw all the way it's going down to $300 and less than $300, right?

So I think the prices does-- it has a lot of volatility. We always say that it is going to have its peak, and it's going to have its low. But what's the beauty about it is, again, technology, technology, and the decentralization.

So if there is going to be hedge funds and Wall Street only looking at it as a speculative currency, you're going to make money, you're going to short it, and you're going to lose money. But if you're actually going to buy into the technology behind it, technology companies like Polygon and Stockware, [? RVive, ?] [? Graff, ?] who are really building and have the utilization of their products, then it's not going to be that crazy.

- Now, I want to mention something that you had in your notes, this threshold to watch of a potential $14,000 floor when it comes to Bitcoin. What would have to happen for that to be the case?

KAVITA GUPTA: I think market sentiments is already trickling down, right? DeFi was one of the categories which came out in a big way, so everybody was going in DeFi. The UST Bank has already got the market sentiment to realize that we need to really see what's the underlying asset where we are creating all these castles of speculation is. Celsius is another one.

We are going to continue to see some more cascading impact. It's not done yet. We are not at the bottom. And I continue to say that. It is for the long-term belief, if you do believe in the technology. And I do believe a couple of things, more like Celsius, we're going to see more DeFi liquidity problems happening.

And if there are more-- apart from liquidity, if we also have socioeconomic political issues with the war going on, with Fed rates, and the whole market having a depression, sort of financial depression, we're not going to see liquidity in the market at all for quite some time.

- And I want to ask you, in terms of sort of protection for some of these investors, if they're a retail investor, even though there were lots of warnings, a lot of people still pouring money into this space. And we've all seen banks like Lloyds offering crypto insurance. What will work as some sort of protection placeholder for investors while regulators really work out some of the kinks in all of this?

KAVITA GUPTA: I think like we have seen in the traditional role, you need to be educated. You should be in accredited investors. You should know all your risk if you are doing small amount. You should have better education pieces around it. It should not be like pumping and dumping by just going on to crypto Twitter and following influencers and saying, oh, they're going with it. Let's go with it, and let's make money.

I always say, when the market is good, the climate is good, everybody thinks they're best friends and they're making money. But regulations and education both goes hand-in-hand in that. And I think these cycles also make people remember the last cycle of down and up to make a much better formative decision.

SEANA SMITH: Kavita Gupta, Delta Blockchain Fund Founder and general partner. Thanks so much for joining us.