Bitcoin prices plunge as top crypto lender halts operations
NEW YORK (AP) — The price of bitcoin and other cryptocurrencies crashed Monday, after a major cryptocurrency lender effectively failed and halted all withdrawals from its platform, citing ” extreme market conditions”.
This is the latest high-profile collapse for a stalwart of the cryptocurrency industry. These meltdowns wiped out tens of billions of dollars of investor assets and prompted urgent calls to regulate the freewheeling industry.
Bitcoin was trading at around $23,400 on Monday afternoon, down more than 16% over the past day. Ethereum, another widely followed cryptocurrency, fell more than 20%. Investors are selling riskier assets such as digital currencies and tech stocks as the Federal Reserve raises interest rates to fight high inflation.
On Sunday, cryptocurrency lending platform Celsius Network announced that it was suspending all withdrawals and transfers between accounts in order “to honor, over time, withdrawal obligations”. Celsius, with around 1.7 million customers and more than $10 billion in assets, gave no indication in its announcement when it would allow users to access their funds.
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In exchange for customer deposits, the company pays out extremely generous returns, as high as 19% on some accounts. Celsius takes these deposits and lends them out to generate a return.
Lending platforms such as Celsius have recently come under scrutiny for offering returns that normal markets couldn’t support, and critics have branded them as Ponzi schemes.
This is the second notable collapse of the cryptocurrency universe in less than two months. The Terra stablecoin imploded in early May, wiping out tens of billions of dollars in a matter of hours. Stable coins have been considered relatively safe, as they are supposed to be backed by durable assets, such as a currency or gold.
Much like Terra, Celsius had marketed itself as a safe place for cryptocurrency holders to deposit their funds. Even if Celsius failed, the company’s website advertised that users could “access your coins anytime, keep them safe forever.”
“There is a lot of work to do as we consider various options, this process will take time and there may be delays,” Celsius said in a statement.
This decision surprised investors and depositors. In online chats, they asked why their investments weren’t protected.
It is unclear whether Celsius depositors will recover all of their funds. A cryptocurrency lender is not regulated like a bank, so there is no deposit insurance or legal framework to determine who gets their money first, like in a bankruptcy. It is possible that Celsius investors, including the Quebec pension fund, will recover their investment before Celsius depositors.
“It was yet another bank run. You are not reinventing anything here. They were promoting their services as a better savings account, but at the end of the day, you’re just another unsecured lender,” said Cory Klippsten, CEO of Swan Bitcoin, who is publicly skeptical of the business model of Celsius for years.
Terra and its Luna token offered similar returns on customer deposits. These tokens collapsed after huge customer withdrawals forced Terra operators to liquidate all assets used to back their currencies. Terra’s collapse has prompted calls for reform from the cryptocurrency industry and calls for regulation from Congress.