NEW YORK (AP) – The price of bitcoin and other cryptocurrencies fell on Monday after a major creditor of cryptocurrency virtually failed and stopped all withdrawals from its platform, citing “extreme market conditions.”
This is the latest major collapse of the cryptocurrency industry. These collapses wiped out tens of billions of dollars in investor assets and sparked urgent calls to regulate the free industry.
Bitcoin traded at about $ 22,400 late Monday, down more than 16 percent on the last day. Ethereum, another widely used cryptocurrency, fell about 17%. Investors are selling riskier assets such as digital currencies and technology stocks as the Federal Reserve raises interest rates to fight high inflation.
On Sunday, the cryptocurrency lending platform Celsius Network announced that it was pausing all withdrawals and transfers between accounts in order to “fulfill the withdrawal obligations over time.” Celsius, with approximately 1.7 million customers and more than $ 10 billion in assets, gave no indication in its announcement when it will allow consumers to access their funds.
In exchange for customer deposits, the company pays out extremely generous incomes, over 19% on some accounts. Celsius takes these deposits and lends them to generate returns.
Lending platforms like Celsius have recently come under scrutiny because they offer returns that normal markets could not sustain, and critics have effectively called them Ponzi schemes.
Francisco Orduna, 36, said he was targeting Celsius about a year ago and was drawn to the company’s promises of high returns from its cryptocurrencies.
“It was easy to ignore the risk because consumers are used to these weekly Celsius interest payments,” Orduna said. He withdrew most of his money from Celsius late last week, but said there were still residual holdings trapped on the platform.
This is the second noticeable collapse in the cryptocurrency universe in less than two months. The stable Terra coin exploded in early May, wiping out tens of billions of dollars in a matter of hours. Stable coins are considered relatively safe because they are supposed to be backed by hard assets, such as currency or gold.
Just like Terra, Celsius had sold itself as a safe place for cryptocurrency holders to deposit their funds. Even as Celsius fails, the company’s website advertises that users can “access your coins whenever they keep them safe forever.”
“There is a lot of work ahead, as we are considering different options, this process will take time and there may be delays,” Celsius said in a statement.
This move surprised investors and depositors. In online chats, they wondered why their investments were not protected.
Orduna said he withdrew his money from Celsius in part because of Terra’s implosion. There were reports that Celsius had invested some of its customers ‘money in Terra, and there were concerns that Celsius was taking too much risk with the depositors’ money.
“I’m starting to worry about whether the profitability they offer is really sustainable,” he said.
It is unclear whether Celsius depositors will get all their money back. The cryptocurrency lender is not regulated as a bank, so there is no deposit insurance and no legal framework for who can get their money back first, such as in bankruptcy. It is possible that Celsius investors, which include the Quebec Pension Fund and the well-known venture capital fund WestCap, will get their investment back before Celsius depositors.
WestCap did not respond to a request for comment. The Pension Council of Canada also did not respond to a request for comment.
“This was another bank leak. You are not rediscovering anything here. They advertised their services as a better savings account, but in the end you are just another unsecured lender, “said Corey Klipsten, CEO of Swan Bitcoin, who has been publicly 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 operators to liquidate all assets used to maintain their currencies. Terra’s collapse has sparked calls for reform from the cryptocurrency industry and calls for congressional regulation.
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