Bitcoin fell as much as 14% on Monday after the cryptocurrency lending company Celsius Network halted withdrawals by its nearly 2 million users citing “extreme” market conditions, in a sign that crypto financial markets may be heading for chaos.
Celsius was hit with cease-and-desist orders by at least four state agencies over its lending platform last year and was reportedly being investigated by the SEC as well.
Celsius’ action triggered a slide among cryptocurrencies, with their value dropping below $1 trillion on Monday for the first time since January 2021, sparking worries the rout might spill over into other assets or hit other companies.
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts,” said a statement by the cryptocurrency bank posted on Medium. “We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.”
With Celsius’s reported $11.8 billion of assets under pressure, the disruption accelerated a selloff in high-risk digital markets that were already reeling amid rising interest rates and a possible recession.
Bitcoin, the most widely traded digital asset, has lost more than 17 percent of its value over the last 24 hours and is now trading below $23,000 — roughly a third of where it was valued in late fall.
Analysts claim these problems at Celsius underscore fears that the sector’s largest companies are on shaky financial ground, but that is the least of it.
The episode is a grim reminder that unlike actual currency—such as the US dollar, which is backed by the full faith and credit of the United States of America—cryptocurrencies have nothing holding them up.
With prices crashing, Binance — the world’s largest crypto marketplace — announced on Monday it was freezing Bitcoin withdrawals for technical reasons. Those services were resumed about three hours later.
Celsius’ liquidity crisis a month after another popular startup, TerraForm Labs, sustained tens of billions of dollars in losses following the collapse of its algorithmic stablecoin TerraUSD.
A stablecoin is a type of cryptocurrency that is pegged to a real-world asset.
State and federal market regulators have targeted crypto lending strategies as a potential violation of securities law. BlockFi, a New Jersey-based platform, reached a $100 million settlement with the Securities and Exchange Commission and 32 state agencies after it was accused of selling unlicensed investment products for about three years.
Like Celsius, Terraform had attracted interest in its platform by offering token holders high-yield returns in exchange for staking their crypto in an online lending platform.