Heat on crypto as Celsius halts withdrawals

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by Glenn Dyer

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Has Monday been crypto’s own Black Monday to mark a clean out in the fortunes of the nascent sector?

While Black Mondays have happened in stocks in 1929 and 1987 and 2008, investors have lived to tell the tale but many of the players failed and vanished in an orgy of red ink and recriminations in the subsequent sorting out of the disasters.

 But for crypto it looks like it has been a Black month.

After being battered in May in a major sell off as some big names folded, the sector has been waiting to see if the worsening outlook for inflation and the move to higher interest rates would return to slam the sector – it did late last week and over the weekend and on into Monday, helped by problems at one major crypto website.

In fact the weekend and Monday saw an estimated $US200 billion or more wiped off the entire cryptocurrency market, according to media and sector reports.

That saw the cryptocurrency market capitalisation fall below $US1 trillion on Monday for the first time since February 2021, according to data from CoinMarketCap and Forbes magazine.

On October 21, last year, CoinDesk had estimated the value of the entire market at around $US2.7 trillion. It is now 60% or more smaller and heading for levels last seen in 2018.

Bitcoin and other major cryptocurrencies tumbled on Monday after Celsius Network (which had claimed to be valued at $US12 billion) halted customer withdrawals, in the latest sign of intensifying strains across the digital assets industry.

Celsius claimed to have 1.7 million customers and advertised to its users that they can get a yield of 18% through the platform.

Users deposited their crypto with Celsius. That crypto is then loaned out to institutions and other investors. Users then received a yield from the revenue Celsius earns.

But the crypto market sell-off has hurt Celsius. The company had $US11.8 billion worth of assets as at May 17, down from more than $US26 billion in October last year, according to its website.

“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations,” Celsius said on Sunday (US time), in a statement on its website.

The ban came as leading cryptocurrencies Bitcoin and Ether fell by 14% and 25%, respectively, since Friday. Celsius’s own coin, CEL, plummeted 20% in value on Friday and dropped a further 67% over the weekend to roughly 20 US cents on Monday.

US media reports claimed that Celsius, based in Florida, was one of the biggest lenders in the crypto with around 1.7 million customers. Celsius was valued at $US3.25 billion as of November, following a $US750 million funding round led by Canada’s second largest pension fund, Caisse de dépôt et placement du Québec (which has close to $C400 billion in assets).

Celsius’s value and the worth of that funding is now very much open to question.

Adding to the pressures, Binance, the largest crypto exchange in the world, on Monday morning temporarily paused bitcoin withdrawals “due to a stuck transaction causing a backlog.” That was later resolved, according to Binance.

The news came as bitcoin slumped more than 17% on Monday, breaking down through the $US23,000 level to trade under December, 2020 values. According to CoinDesk data bitcoin traded around $US22,764 in US trading.

The largest cryptocurrency and its smaller rivals have been hit hard by macroeconomic concerns, including rampant inflation, rising interest rates and talk of a looming recession.

Contrary to previous claims from their supporters, cryptocurrencies are not proving to be any sort of safe haven for investors – the current inflationary surge is showing there are no safe havens with gold and other precious metals being also whacked by rising interest rates and the stronger US dollar.

Bitcoin and other cryptos have tended to correlate with shares and other risk assets. When these indices fall, crypto drops as well – as we have seen this year.

The crypto market has been on edge since mid-May when the so-called algorithmic stablecoin terraUSD, or UST, and its sister currency luna imploded, shaking the sector, with the help of rising inflation and higher interest rates.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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