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Crypto Bank Celsius Freezes Withdrawals; bitcoin, dip in etherium

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The dramatic step by beleaguered cryptocurrency bank Celsius late Sunday night to halt withdrawals from its nearly 2 million users rattled crypto markets on Monday and underscored fears that some of the biggest firms in the industry are on fragile financial foundations.

“Due to extreme market conditions, we are announcing today that Celsius is suspending all withdrawals, exchanges and transfers between accounts,” the company, officially called Celsius Network, said in a statement. “We are taking this action today to put Celsius in a better position to meet, over time, its withdrawal obligations.”

In simple terms, this means that people who have deposited money with Celsius to reap its reputedly high returns cannot, at this time, withdraw it. The company says it has 1.7 million users and holds about $8 billion in deposits, which are now frozen for investors.

No timetable has been proposed for the reinstatement of the withdrawals.

The news sent the biggest cryptocurrencies plummeting – bitcoin fell 12% on Monday morning and Ethereum fell 15%. There is a sort of feedback loop here; it was a drop of more than 10% for each currency in the days leading up to the announcement that likely contributed to Celsius’ liquidity issues in the first place.

Celsius’ own coin fell from a high of $7 last year to 21 cents.

Celsius is a “decentralized” or “DeFI” bank that lends and borrows crypto much like a financial institution does for dollars, but without much of the usual banking infrastructure.

Celsius offers extremely high returns to those who deposit crypto into it. Before the shutdown, this rate was 18.6%, a multiple of several times that of traditional banks and has in the past climbed to 30%. This has led critics to say he doesn’t have the assets on hand to back up deposits if enough investors ask for their money.

Over the past year, state governments have asked many of the same questions. Last September, the New Jersey Bureau of Securities sent the company a cease-and-desist letter, while Alabama and Texas also asked it to answer questions about its liquidity. (The company has offices in New Jersey, as well as in Europe and the Middle East.) The New York attorney general has also requested more information about Celsius’ business.

Unlike traditional banks, crypto lenders have no regulatory requirement to demonstrate sufficient assets, while investors have no protection from the Federal Deposit Insurance Corp., which insures deposits in banks, if a bank of crypto runs out of funds during a run.

A high level of interconnectedness also prevails with crypto, with many companies borrowing from or investing in each other, potentially magnifying the challenges.

In the past, Celsius has borrowed up to $1 billion from Tether, the dollar-pegged “stablecoin,” to ensure liquidity. Tether itself has generated questions about whether it has enough asset backing.

And it was Celsius trading that some experts say caused the crash last month of the Terra stablecoin, which in turn fueled a bigger crypto slide that rocked much of the market, including Celsius.

Stephen Diehl, a London-based software engineer who leads a campaign by technologists against crypto in Washington, has blamed any potential Celsius outcome on the government’s doorstep.

“Unfortunately, this is a regulatory failure on the part of the SEC,” he said in a message to The Washington Post. “There were red flags on this company for years and they did nothing. These protocols that promise returns above 20% without any economic activity are basically just a new form of Ponzi scheme. It’s just a shame that so many retail investors lose everything when it was completely avoidable. »

The possibility of contagion to the wider economy from Celsius stock appears limited, although there may be potential downstream effects on Canadian pensioners. The CDPQ, one of the largest pension funds in this country, is an investor in the lending platform.

Celsius sought to reassure investors in its statement while offering few commitments.

“There is a lot of work to do as we consider various options,” he said. “There may be delays,” he added, but maintained “Celsius has valuable assets and we are working diligently to meet our obligations.”

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Post expires at 8:30pm on Thursday June 23rd, 2022

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