The crypto universe is facing its second major crisis in just one month. US platform Celsius Network on Monday froze all withdrawals, swaps and transfers between accounts due to “extreme market conditions” – a reference to the recent sharp falls in cryptocurrencies such as bitcoin and Ethereum. Celsius justified the move as a way to “stabilize liquidity and operations” as other cryptocurrencies plummet.
The announcement – which comes just weeks after the Luna crypto crash wiped out the savings of thousands – has sparked fears among Celsius investors. According to company figures, Celsius has more than €11 billion ($11.5 billion) in assets. The network sells tokens, and also offers low-interest loans and high yields to users who place their cryptocurrencies as securities. “Transfer your crypto to Celsius and you could be earning up to 18.63% APY in minutes,” the website states.
The news was published on the company’s blog and shared on Twitter, where investors were quick to express their concerns. One user commented: “I can’t even repay the damn loan because of the transfer freeze. That’s ridiculous,” while another stated: “Withholding withdrawals is not in the interest of the ‘community.’ What went wrong? Be transparent and inform.” Many also shared that they had also lost money in the Luna crypto crash.
In the blog post, Celsius tries to strike a reassuring tone. The company insists that clients will continue to receive the promised returns even if they cannot trade with their money for now. “We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” the blog post reads, while adding that the “process will take time, and there may be delays.”
Celsius was founded by Alex Mashinsky and S. Daniel Leon in the summer of 2017. According to the company website, the two drew up the plan for the company on a coffee shop napkin. Two and a half years later, Celsius was available in 100 countries. By March 2021, it was managing more than $10 billion in assets, and by February of that year, it had 200 employees in offices in New Jersey, London, Tel Aviv, Cyprus and Serbia.
“Banks are not your friends, we all know that. That’s why we decided to create a substitute for the banking system,” says Mashinsky, in a promotional video for Celsius. That message – “banks are not your friends” – is one that the entrepreneur has repeatedly used in speeches and interviews. On Monday, Mashinsky shared a link to the blog post announcing the freeze on withdrawals, but made no further comment.
Following the news of the freeze, the company’s token CEL – which can be used to pay for other Celsius services – fell 60%. Indeed, the entire crypto market has fallen amid concerns over rising inflation in the United States, which could prompt the Federal Reserve to increase interest rates. Since hitting a record high of $69,000 in November, the cryptocurrency has lost two thirds of its value. Ethereum, the second-largest cryptocurrency by capitalization, was down 17%, to $1,215 on Monday, and its value has also dropped two thirds in the last six months.