• Two high-profile crypto lending companies, BlockFi and Celsius, both failed catastrophically in 2022 due to their combination of crypto lending and crypto mining.
• BlockFi announced its new mining operations in May 2021 in the form of a partnership with Blockstream and its long-standing mining unit.
• Celsius invested heavily in bitcoin mining, with $500 million spent on its mining efforts as of November 2021.
In the world of cryptocurrencies, the word “contagion” has become all too common in recent months. After a disastrous fallout in the past year, investors have been left painfully aware of the interconnected nature of the entire cryptocurrency industry. Trillions of dollars have been lost, with even bitcoin mining companies not being immune to the losses.
Two of the industry’s leading crypto lending companies, BlockFi and Celsius, have both gone bankrupt following the combination of crypto lending and crypto mining. BlockFi announced its new mining operations in May 2021 in partnership with Blockstream, a long-standing mining unit. Though the exact amount of hash rate managed by BlockFi at Blockstream facilities is unknown, the company viewed mining as a complement to its financial service offerings.
Celsius, on the other hand, invested heavily in bitcoin mining, with $500 million being spent on mining efforts as of November 2021. According to former Celsius CEO Alex Mashinsky, the company had plans to build its own mining facilities in North America and Europe, but these plans were never realized.
Both companies attempted to capitalize on the growing demand for crypto mining and lending, but the risks were too great. Crypto lending and mining are both extremely volatile markets and require significant capital to remain competitive. As the industry grew and demand increased, the two companies were unable to keep up with the competition.
The downfall of the two crypto lending companies serves as a warning for future entrepreneurs. What many don’t realize is that crypto mining and lending are both extremely risky ventures, and investors must be prepared to take on the associated risks. Just as contagion spread throughout the industry in 2020, the same can happen with crypto businesses if they’re not properly managed. In a volatile and uncertain industry, it’s important to be aware of the risks before getting involved.