Crypto Lender Celsius Pauses Withdrawals;  bitcoin slides

Crypto Lender Celsius Pauses Withdrawals; bitcoin slides

Crypto Lender Celsius Pauses Withdrawals;  bitcoin slides

Celsius CEO Alex Mashinsky.

Piaras Ó Midheach | Sports file for Web Summit | Getty Images

Celsius, a controversial cryptocurrency lending platform, said Monday it was pausing all withdrawals, causing more pain in the fragile crypto market.

Celsius is one of the largest players in the burgeoning crypto lending space, with more than $8 billion on loan to customers and nearly $12 billion in assets under management as of May. The group offers users higher than average interest rates on their deposits.

“Due to extreme market conditions, we are announcing today that Celsius is pausing all withdrawals, swaps and transfers between accounts,” the company said in a memo to customers Monday.

The move has raised concerns about Celsius’s solvency. The company has more than halved the value of its assets since October, when it handled $26 billion in client funds. Cel token from Celsius also erased 97% of its value in the same time frame. Celsius is the largest container of cell.

“Acting in the best interests of our community is our top priority,” Celsius said in the memo.

“In service of that commitment and to adhere to our risk management framework, we have activated a clause in our terms of use that enables this process. Celsius has valuable assets and we are working hard to meet our commitments.”

Celsius was not immediately available for additional comment on the situation when CNBC contacted him.

Bitcoin and other cryptocurrencies took a beating from the news. The world’s largest digital assets plunged 8% to $25,287, according to Coin Metrics data, to a low not seen since December 2020. Ether fell 8% to $1,329, while Celsius’s cel token fell more than 50%.

It comes hot on the heels of the $60 billion collapse of hyped stablecoin terraUSD. The collapse heightened regulators’ fears about crypto products offering unusually high returns to investors. Anchor, a lending service, once promised users interest rates of up to 20% on their holdings of terraUSD, a coin that was always worth $1.

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

Last week, the company said it had not had any problems meeting withdrawal requests. Celsius said it had the reserves and “more than enough” of the cryptocurrency ether to meet its obligations.

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

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

Hours before announcing an account freeze, Mashinsky lashed out at a crypto investor who raised concerns with Celsius.

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

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

In February, BlockFi, a competitor of Celsius, was fined $100 million by the Securities and Exchange Commission and 32 states, accusing it of violating securities laws. Celsius itself received cease-and-desist letters from four US states.

Vijay Ayyar, head of international crypto exchange Luno, said Celsius’s decision to pause withdrawals had exacerbated the sell-off of cryptocurrencies, which have already come under pressure due to concerns about rising inflation and higher interest rates.

“The Luna/Terra debacle may have a lot of hidden skeletons in the closet, which we may see coming out now,” Ayyar told CNBC.

“Confidence in these yield products has certainly been eroded and we will likely see widespread regulation for such products in the near term.”

Nexo, another crypto lending company, said it sent Celsius a letter on Sunday offering to acquire its collateralized portfolio, but the company declined.

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

“We firmly believe that much can be done to help Celsius’ customers in a variety of ways.”