Over the years, cryptocurrencies have acquired more followers and users who feel comfortable carrying out digital financial operations worldwide. The crucial thing is that they make investments that range from tiny amounts to amounts like those that Tesla invested in Bitcoin and more.
Like any market, the cryptocurrency market could not fail to diversify its services; it is there where the concept of crypto loans arises, which comes to fill the void that perhaps existed in this digital investment environment. This information and much more are on bitalpha-ai.io.
Informative references that make a difference
Without knowing cryptographic investments in depth, it is known that digital currencies can be sold, bought, exchanged, and stored to the point that they can be traded in the traditional financial market, such as the Stock Market.
This aspect is very relevant, but many people are unaware that there is also the opportunity to make loans in cryptocurrencies, where people who are just getting to know the market, such as professionals in crypto investments, tend to get involved.
Although Bitcoin and the other cryptocurrencies have a set of elements against them, such as volatility, their decentralization, which means that they do not have a legal basis that supports the cryptographic market and the tokens that are invested in it, or perhaps the same risks, they are becoming the tools with the most significant investment potential in the future.
That is why crypto loans have become popular and exciting, not only now but from the moment the first company that offered this service to the market was created to the point that risk control may have gotten out of hand and the capital transferred to third parties as advances in cryptocurrencies.
Celsius Network is considered one of the platforms with the highest debt capacity. As a result, many people deposited their capital to recover what they had invested in the form of multiplied profits.
Nobody expected that this prestigious company in the cryptographic sector could declare bankruptcy after spending almost a month without making the corresponding discounts to its clients.
How do crypto lenders operate?
This type of cryptographic operation is based on the allocation of Fiat currencies by financial companies known as Fintech or through blockchain technology and where the beneficiary or beneficiaries usually establish a digital asset, which in turn is based as collateral in the case of fiat currencies.
Suppose the loans are made under the figure of cryptocurrencies. In that case, any other asset that supports the value of the generated liability must be given as collateral.
These operations are usually very similar to those carried out when requesting financing through traditional banking entities. The guarantee can be any asset, whether real estate or personal property.
The safest way these companies have found to operate and guarantee compliance with the lenders’ obligations has resorted to using smart contracts to encode the payment conditions and recover the assets delivered in the form of a cryptographic loan.
This measure is because the cryptocurrency market is quite volatile. The market cannot be controlled, which is why risks are generated in which the creditor is naturally involved; it is there where Celsius never imagined that it could bankrupt the fall of the digital financial market.
The leading causes of bankruptcy
In the first place, the global economic and financial panorama did not contribute to the fact that digital currencies kept their prices falling notably, which meant that the loans granted at the end of 2021 no longer had the same value, that is, the capital was devalued.
On the other hand, the terrible fall of Terra Luna is added when many bet that this cryptocurrency had the potential to multiply its price infinitely.
Investors’ excessive sale of digital assets negatively impacted the market, leading Celsius to bankruptcy.
Lastly, the borrowing capacity exceeded the available support with the devaluation of assets. That is where they cannot respond to their users by blocking their accounts.
This story does not end here; it is just beginning because the economic panorama evidenced during 2022 has not contributed anything to the valuation of cryptocurrencies, therefore to this type of company, where liabilities could exceed their assets, in amounts greater than $1 billion.