Crypto lender Celsius stops withdrawals; bitcoin slides

Celsius, a controversial cryptocurrency lending platform, said on Monday that it had suspended all withdrawals, causing more pain in the fragile cryptocurrency market.

Celsius is one of the largest players in the nascent cryptocurrency lending area, with more than $ 8 billion lent to customers and nearly $ 12 billion in assets under management in May. The group, which offers users higher than average interest rates on their deposits, is essentially the crypto equivalent of a bank – but without the strict insurance requirements that traditional lenders face.

“Due to extreme market conditions, we are announcing today that Celsius will stop all withdrawals, exchanges and transfers between accounts,” the company said in a note to customers on Monday.

The move has raised concerns about Celsius’ solidity. The company has seen the value of its assets more than halve since October, when it handled $ 26 billion in client funds. Celsius’ cell token has also deleted 97% of the value in the same time frame. Celsius is the largest holder of cel, a symbol that encourages people to buy to earn rewards and get discounts on lending rates.

“Acting in the interest of the community is our highest priority,” Celsius said in the note. “In service of this obligation and to comply with our risk management framework, we have activated a clause in our terms of use that will allow this process to take place. Celsius has valuable assets and we work hard to meet our obligations.”

Celsius was not immediately available for further comment on the situation when contacted by CNBC.

Bitcoin and other cryptocurrencies were beaten on the news. The world’s largest digital assets fell 15% to $ 23,325, according to Coin Metrics data, and fell to the lowest levels not seen since December 2020. Ether fell 17% to $ 1,225, while Celsius’ cell token plunged more than 38%.

It’s hot on the heels of the $ 60 billion meltdown of hyped stablecoin terraUSD. The collapse increased regulators’ fears of cryptocurrencies that give investors unusually high returns. Anchor, a lending service, once promised users interest of up to 20% on their holdings of terraUSD, a coin that was always meant to be worth $ 1.

Market participants have indicated that Celsius had exposure to the now collapsed terraUSD stablecoin. Celsius has denied this.

Just last week, the company said it had had no problems meeting withdrawal requests. Celsius said they had the reserves and “more than enough” of the cryptocurrency eater to meet the obligations.

In April, Celsius CEO Alex Mashinsky told CNBC that his company has an average of 300% security for each loan it offers to retail investors, while for institutional investors it issues loans with collateral.

“We’ve been doing this for five years now, longer than anyone else,” he said at the time. – The business is doing very well.

Hours before announcing a bank account freeze, Mashinsky slammed a crypto investor who raised concerns with Celsius.

“Do you even know one person who has trouble withdrawing from Celsius?” asked Mashinsky, before accusing the investor of spreading “misinformation.”

Cryptocurrency lending is still largely a regulatory gray area. US market regulators believe many of the products should be treated as securities subject to strict rules to ensure that investors are protected.

In February, BlockFi, a competitor to Celsius, was hit with a $ 100 million penalty from the Securities and Exchange Commission and 32 states, which accused it of violating securities laws. Celsius himself was sent termination-and-waiver letters from four US states.

Vijay Ayyar, head of international at the crypto exchange Luno, said that Celsius’ decision to suspend withdrawals had worsened sales of cryptocurrencies, which have already come under pressure due to concerns about rising inflation and higher interest rates.

“The Luna / Terra debacle has potentially many hidden skeletons in the closet, which we now potentially see coming out,” Ayyar told CNBC.

“Confidence in these yield products is definitely affected, and we are likely to see extensive regulation of such products in the short term.”

Nexo, another crypto-lending company, said they sent Celsius a letter on Sunday offering to buy its loan portfolio with security, but the company declined.

“As a sign of goodwill and in an effort to support the digital asset ecosystem in these difficult times, we went out to the Celsius team yesterday to offer our support, but our help was refused,” said Antoni Trenchev, Nexo’s CEO , to CNBC.

“We are convinced that a lot can be done to help Celsius’ customers in various ways.”

Celsius’ problems have raised concerns about the risk of a broader market transmission from cryptocurrencies. Tether, the world’s largest stable coin, hovered during its 1-dollar party on Monday on several major stock exchanges as investors fled the token. Celsius borrowed $ 500 million in tether tokens and provided bitcoin as collateral.

Tether, which made an equity investment in Celsius, said it would not face any fallout from its involvement in stablecoin reserves.

“Tether lending activity with Celsius (as with all other borrowers) has always been over-mortgaged and has no impact on our reserves,” the company said in a statement on Monday.

The manager of Canada’s second largest pension fund, Caisse de dépôt et placement du Québec, and Westcap, a growth investor with more than $ 8 billion in total assets, have also made investments in Celsius.

The CDPQ said it was “monitoring the situation closely.” “Celsius has been affected by very difficult markets in recent weeks, more specifically, the strong volume of withdrawals from customers,” a CDPQ spokesman told CNBC. “Celsius takes proactive action to maintain its obligations to its customers (the Celsius community) and has fulfilled its obligations to its customers to date.”

A Westcap representative did not immediately return a request for comment.