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Bitcoin drops as major crypto lender Celsius Network stalls



NEW YORK – The price of bitcoin and other cryptocurrencies collapsed on Monday after a major cryptocurrency lender effectively failed and halted all withdrawals from its platform due to “extreme market conditions”.

The latest high-profile collapse of one leg of the cryptocurrency industry. These meltdowns wiped out tens of billions of dollars in investor assets and spurred urgent calls to regulate the free-floating industry.

Bitcoin traded at around $23,400 Monday afternoon, down more than 16% in the past day. Ethereum, another widely followed cryptocurrency, fell more than 20%. Investors are selling riskier assets like digital currencies and technology stocks as the Federal Reserve raises interest rates to combat high inflation.

On Sunday, cryptocurrency lending platform Celsius Network announced that it is pausing all withdrawals and transfers between accounts to “fulfill its withdrawal obligations over time.” Celsius, which has around 1.7 million customers and more than $10 billion in assets, gave no indication in its announcement when it would allow users to access its funds.

In exchange for customers’ deposits, the company pays extremely generous returns of up to 19% on some accounts. Celsius takes these deposits and lends them to earn a return.

Lending platforms like Celsius have come under scrutiny recently because they offer returns that normal markets cannot support, and critics have effectively called them Ponzi schemes.

The second notable collapse in the cryptocurrency universe in less than two months. The stablecoin Terra exploded in early May and wiped out tens of billions of dollars in a matter of hours. Stable coins are seen as relatively safe as they must be backed by currency or fixed assets such as gold.

Just like Terra, Celsius had sold itself as a safe place for cryptocurrency holders to deposit their funds. Even as Celsius failed, the company’s website announced that users will “always have access to your coins and keep them safe forever.”

“We have a lot of work ahead of us as we evaluate various options, this process will take time and there may be delays,” Celsius said in a statement.

The move surprised investors and depositors. In online chats, they questioned why their investments were not protected.

It is unclear whether Celsius depositors will get all their funds back. A cryptocurrency lender is not regulated like a bank, so as in a bankruptcy there is no deposit insurance and no legal framework for who gets their money back first. Celsius’ investors, including Quebec’s pension fund, are able to get their investments back in Celsius before depositors do.

“This was another bank operation. You are not reinventing anything here. They were promoting their service as a better savings account, but in the end, you are just another unsecured lender,” said Cory Klippsten, CEO of Swan Bitcoin, who has been skeptical of Celsius’s business model for years.

Terra and its token Luna offered similar returns on customer deposits. These tokens collapsed after large client withdrawals forced Terra operators to liquidate all assets used to support their currency. Terra’s collapse spurred calls for reform from the cryptocurrency industry and calls for Congressional regulation.





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