Categories: ePaymentMarketing

Cryptocurrencies Plunge After Celsius Pauses Withdrawals

The value of Bitcoin and other cryptocurrencies plunged on Monday after major US cryptocurrency lending company Celsius Network froze withdrawals and transfers, citing “extreme” conditions.

The declines caused the the value of the global cryptocurrency market to fall below $1 trillion (£810m) for the first time since January 2021.

Celsius, which with a value of $12bn is one of the biggest crypto lending platforms, allows users to lend out their tokens as collateral for other crypto projects in exchange for annual yields of up to 17 percent.

TerraUSD collapse

But investor interest in such high-risk areas has dropped off since the collapse of the TerraUSD “stablecoin” in early May, which along with the Luna coin was linked to a similar high-yield scheme.

Celsius said it was pausing all withdrawals, transfers and swaps after weeks of speculation around the sustainability of its large returns.

The company’s business model, like that of Terra, in which it was an investor, depends upon a steady flow of new entrants feeding the system, or borrowing to pay the high rates.

Following Terra’s collapse, some critics likened the business model to a pyramid scheme.

“When I read about the ‘algorithm’ of @terra_money, it sounds just like a crypto version of a pyramid scheme,” wrote billionaire investor Bill Ackman on Twitter at the time.

“Investors were promised 20 percent returns backed by a token whose value is driven only by demand from new investors in the token. There is no fundamental underlying business.”

Investor chill

Celsius’ move came soon after the company had appeared to deny that it was restricting withdrawals.

Chief executive Alex Mashinsky challenged critics over the weekend to find “even one person who has a problem withdrawing”.

Celsius said it was taking the measure for the “benefit of our entire community in order to stabilise liquidity and operations while we take steps to preserve and protect assets”.

Investors have been selling riskier assets in the face of high inflation and expected interest rate rises by central banks, which it is feared will hamper growth.

Bitcoin was down more than 10 percent on Monday, falling below $23,400, an 18-month low. It is down by about 50 percent this year.

Matthew Broersma

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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