Bitcoin and other big cryptocurrencies tumbled on Monday after $12 billion lender Celsius Network halted customer withdrawals, in the latest sign of intensifying strains across the digital assets industry.
The fall followed a suspension of withdrawals and transfers between accounts on Celsius, one of the world’s biggest crypto lending platforms, which blamed “extreme market conditions”.
The move dealt a heavy blow to the broader digital asset market. Bitcoin, the world’s most actively traded cryptocurrency, has dropped almost 20 per cent since Friday, to the lowest level since December 2020, according to CryptoCompare data. Selling had started at the weekend as concerns swirled among some traders that market tumult could imperil the group’s ability to meet redemption requests.
The value of the cryptocurrency market fell below $1 trillion on Monday for the first time since January 2021, according to data site CoinMarketCap, reaching as low as $926 billion.
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That means the sector has lost more than 68 per cent of its value since the global cryptocurrency market peaked at $2.9 trillion in November 2021. It has lost $1 trillion in value in the past two months alone as investors ditched riskier assets in the face of high inflation and fears that interest rate raises by central banks would hamper growth.
The largest cryptocurrency, bitcoin, was down more than 10 per cent on the day, falling to an 18-month low of $23,750. It is down by about 50 per cent so far this year. Smaller coin ether fell more than 15 per cent to $1,210.
“As inflation proves to be an even trickier opponent to beat than expected, bitcoin and ether are continuing to get a severe bruising in the ring,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “They are prime victims of the flight away from risky assets as investors fret about spiralling consumer prices around the world.”
Cooling sentiment
Celsius is one of the biggest players in the market for digital yield products, providing users with the ability to lend out their tokens as collateral for other crypto projects. In return for lending their tokens, traders were able to earn annual yields of as much as 17 per cent.
Sentiment towards these high-risk projects cooled sharply after the terra and luna tokens — which were the foundation of another popular yield platform — collapsed in a matter of days. The value of assets deposited on Celsius’s platform shrivelled to less than $12 billion as of May 17th from more than $24 billion in late December.
Ether, which is considered a proxy for sentiment for digital asset projects that offer investors high yields, has dropped almost 30 per cent since Friday, leaving it down by two-thirds in dollar terms this year.
Celsius last year raised $400 million in an equity funding round led by Caisse de Dépôt et Placement du Québec, Canada’s second-largest pension fund, and WestCap, the fund set up by former Airbnb and Blackstone executive Laurence Tosi.
That fundraising came even as US regulators indicated they were scrutinising the industry. State authorities in Texas and New Jersey have alleged that Celsius’s yield-bearing accounts amount to an unregistered securities offering.
Celsius’s halt to withdrawals early on Monday was also a U-turn after it had spent several days rebutting accusations that customers could not make withdrawals. Chief executive Alex Mashinsky challenged critics at the weekend to find “even one person who has a problem withdrawing”.
Celsius, which has offices in the US, UK and Lithuania, said the redemption freeze was taken to the “benefit of our entire community in order to stabilise liquidity and operations while we take steps to preserve and protect assets”.
The group’s own coin, known by the ticker CEL, has lost half its value in the past 24 hours, according to CryptoCompare data. — Copyright The Financial Times Limited 2022
