Bitcoin plunges as major crypto lender halts operations

Bitcoin plunges as major crypto lender halts operations thumbnail

NEW YORK — Bitcoin and other cryptocurrencies were collapsing in price Monday, after a major cryptocurrency lender effectively failed and halted all withdrawals from its platform, citing “extreme market conditions.”

It’s the latest high profile collapse of a pillar of the cryptocurrency industry. These meltdowns have wiped out tens to billions of dollars in investor assets and prompted urgent calls for regulation of the freewheeling sector.

Bitcoin was trading at roughly $23,400 Monday afternoon, down more than 16% in the past day. Another cryptocurrency that is widely followed was Ethereum. It was down more than 20%.

On Sunday the cryptocurrency lending platform Celsius Network announced it was suspending all withdrawals and transfers between accounts to “honor over time withdrawal obligations.” Celsius, which has more than million customers and more assets than trillion, did not give any indication when users would be able to access their funds.

Celsius, which has more than $11 trillion in customer assets, is one of the largest cryptocurrency lending platforms. The company offers customers deposits in exchange for high yield returns, some accounts earning 19%. Celsius lends these funds to other people to make a return.

Lending services such as Celsius have been under scrutiny lately because they offer yields that normal market could not support. Critics have called them Ponzi schemes.

This is the second major collapse of cryptocurrency in less than two years. In just hours, Terra, the stablecoin, collapsed in May. It erased tens of millions of dollars. Because they are supposed to be backed with hard assets such as currency or gold, stablecoins have been deemed relatively safe.

Just as Terra, Celsius was marketed as a safe place where cryptocurrency holders could deposit their funds. Even while Celsius was failing, the company’s website advertised that users can “access your coins whenever, keep them safe forever.”

“There is a lot of work ahead as we consider various options, this process will take time, and there may be delays,” Celsius said in a statement.

The move was unexpected by investors and depositors. They questioned why their investments were not protected in online chats.

It is unclear if Celsius depositors will receive all their funds back. A cryptocurrency lender isn’t regulated like a bank. There’s no deposit insurance or legal framework that will determine who gets their money back, just like in a bankruptcy. It is possible that Celsius’s investors, which includes Quebec’s pension fund will get their investment back before Celsius’ depositors.

“This is yet another bank run. This is not a new concept. They promoted their services as a better saving account, but in the end, they’re just another unsecure lender,” stated Cory Klippsten (CEO of Swan Bitcoin), who has been openly skeptical of Celsius’ business model for years.

Terra and its token Luna offered similar yields on customer deposits. After huge customer withdrawals, Terra’s operators had to liquidate all assets used to support their currencies. The collapse of Terra has prompted calls for reform in the cryptocurrency industry and for Congressional regulation.

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