Crypto market tumbles as Celsius disables withdrawals
On Monday morning, the cryptocurrency market witnessed a major selloff and the market cap dropping below US$ 1 trillion for the first time in over a year after one of the biggest crypto lending platform Celsius announced it was suspending all withdrawals,, citing ‘extreme market conditions’ and and a need to ‘stabilize liquidity.’
The announcement accelerated a massive selloff across the globe that was already in progress triggered by concerns over high inflation and prospects for an interest rate hike ahead of a Federal Reserve meeting this week.
In a blogpost, Celsius wrote it was ‘pausing’ all withdrawals and transfers for its 1.7 million customers.
‘Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations.’
‘We are taking this necessary action for the benefit of our entire community in order to stabilise liquidity and operations while we take steps to preserve and protect assets,’ reads the statement from Celsius, which was valued at $US 3.25 billion post capital raise towards the end of 2021.
Following Celsius’ announcement, Bitcoin’s value fell below $24,000—down nearly 14%— its lowest level since 18 months. Celsius’ native token, CEL plummeted by 70%, trading at US$ 0.2 as of Monday morning - down from around US$ 2 in early May and US$ 7 in June 2021. Ethereum has dropped by more than 18.3%, and its price now sits below US$ 1,200. Other popular altcoins such as Binance’s BNB dropped 15%; Dogecoin is down 18.3% and Solana slumped 18.9%.
Meanwhile, crypto exchange Binance announced that it was also temporarily suspending Bitcoin withdrawals owing to a ‘stuck on-chain transaction causing a backlog’ of Bitcoin network withdrawals before announcing resumption a few hours later.
The total value of the cryptocurrency market dropped below US$ 1 trillion according to Coinmarketcap, which had valued the market at US$ 3 trillion in November 2021.
Celsius is one of the largest crypto lending platforms which allows anyone to lend and borrow money. It has raised US$ 750 million in funding from investors including investor firm WestCap and Canadian pension fund manager Caisse de dépôt et placement du Québec.
Celsius offers attractive interest rates to those who deposit funds for the company’s use. This includes 7% interest rates on stablecoins like USDC and Tether, and returns of 6.25%, 6% and 7.25 % for cryptocurrencies - Bitcoin, Ethereum and Polygon respectively. It also offers interest rates of more than 7% for users who lend the company CEL. The protocol lends out its pooled coins at higher rates to borrowers.
Celsius’ collapse comes after the fall of another DeFi lending protocol - Terra. Prior to Celsius’ withdrawal suspension announcement, the lending platform reportedly withdrew around US$ 320 million worth of cryptocurrencies from decentralized finance protocol Aave and transferred them to the FTX exchange.
The move prompted the community to speculate an ongoing liquidity crisis. Meanwhile, Critics also spoke out against tokens with little to no inherent value, and their highly speculative nature that are prone to swift falls as well as bank-run exoduses on platforms that offer such tokens.