Bitcoin plummets when large crypto lenders stop operating
NEW YORK – The price of bitcoin and other cryptocurrencies crumbled on Monday, after a major cryptocurrency lender effectively failed and stopped all withdrawals from its platform, citing “extreme market conditions.”
It is the latest high-profile collapse of a pillar in the cryptocurrency industry. These meltdowns have wiped out tens of billions of dollars from investors’ assets and spurred urgent calls for regulation of the freewheel industry.
Bitcoin was trading at around $ 23,400 on Monday afternoon, down more than 16% in the last day. Ethereum, another widely followed cryptocurrency, fell more than 20%. Investors have sold more risky assets such as digital currencies and technology stocks as the Federal Reserve raises interest rates to combat high inflation.
On Sunday, the Celsius Network’s cryptocurrency lending platform announced that it would stop all withdrawals and transfers between accounts in order to “meet, over time, withdrawal obligations.” Celsius, with approximately 1.7 million customers and more than $ 10 billion in assets, gave no indication in the announcement when it would allow users to access their money.
In exchange for customers’ deposits, the company pays out extremely generous returns, up to 19% on some accounts. Celsius takes these deposits and lends them out to generate returns.
Lending platforms like Celsius have been studied recently because they offer returns that normal markets could not support, and critics have effectively called them Ponzi schemes.
It is the second notable collapse in the cryptocurrency universe in less than two months. Stablecoin Terra imploded in early May, wiping out tens of billions of dollars in a matter of hours. Stablecoins have been seen as relatively safe, because they are meant to be backed by hard assets, such as a currency or gold.
Just like Terra, Celsius had sold itself as a safe place for cryptocurrency holders to deposit their money. Even while Celsius failed, the company’s website announced that users can “access your coins at any time, keep them safe forever.”
“There is a lot of work ahead of us when considering different options, this process will take time and there may be delays,” Celsius said in a statement.
The move surprised investors and depositors. In an online chat, they questioned why their investments were not protected.
It is unclear whether Celsius depositors will get all their money back. A lender of cryptocurrency is not regulated as a bank, so there is no deposit insurance and no legal framework for who gets the money back first, as in a bankruptcy. It is possible that Celsius ‘investors, which include Quebec’s pension fund, may get the investment back before Celsius’ depositors will.
“This was another bank robbery. You are not reinventing anything here. They promoted their services as a better savings account, but in the end you are just another unsecured lender,” said Cory Klippsten, CEO of Swan Bitcoin, who has been public skeptical of Celsius’ business model for years.
Terra, and its token Luna, offered similar returns on customer deposits. These tokens collapsed after huge customer withdrawals forced Terra’s operators to liquidate all the assets used to support their currencies. The collapse of Terra has spurred demands for reforms from the cryptocurrency industry, and calls for congressional regulation.
