Celsius CEO Alex Mashinsky.
Piaras Ó Midheach | Sportsfile for Web Summit | Getty Images
Celsius, a controversial cryptocurrency lending platform, said Monday it was pausing all withdrawals, adding more pain to the fragile crypto market.
Celsius is one of the biggest players in the burgeoning crypto lending space, with more than $8 billion in customers and nearly $12 billion in assets under management as of May. The group offers users above-average interest rates on their deposits.
“Due to extreme market conditions, we are announcing today that Celsius is pausing all withdrawals, swaps and inter-account transfers,” the company said in a memo to customers on Monday.
The move has raised concerns about Celsius’ solvency. The company has more than halved the value of its assets since October, when it managed $26 billion in client funds. Celsius’ Cel token has also lost 97% of its value over the same period. Celsius is the largest owner of Cel.
“Acting in the interest of our community is our top priority,” Celsius said in the memo.
“To honor this commitment and to comply with our risk management framework, we have enabled a clause in our Terms of Service that enables this process. Celsius has valuable assets and we are working diligently to meet our commitments.”
Celsius was not immediately available for further comment on the situation when contacted by CNBC.
Bitcoin and other cryptocurrencies have taken a hit in the news. The world’s largest digital asset plunged 8% to $25,287, according to Coin Metrics data, falling to lows not seen since December 2020. Ether fell 8% to $1,329, while Celsius’ Cel token fell more than 50%.
It immediately follows the $60 billion meltdown of hyped stablecoin TerraUSD. The collapse added to regulators’ fears over crypto products offering investors unusually high returns. Anchor, a lending service, once promised users interest rates of up to 20% on their holdings of terraUSD, a coin that was always supposed to be worth $1.
Market participants have hinted that Celsius had exposure to the now-collapsed stablecoin terraUSD. Celsius has denied this.
Just last week, the company said it hadn’t had any trouble fulfilling withdrawal requests. Celsius said it has the reserves and “more than enough” cryptocurrency ether to meet the commitments.
In April, Celsius CEO Alex Mashinsky told CNBC his company holds an average of 300% collateral for each loan it offers to retail investors, while making undercollateralised loans to institutional investors.
“We’ve been doing this for five years now, longer than anyone else,” he said at the time. “Business is going very well.”
Hours before Mashinsky announced a statement freeze, Mashinsky lashed out at a crypto investor who raised concerns about Celsius.
“Do you know anyone who would have a problem pulling out of Celsius?” Mashinsky asked before accusing the investor of “spreading misinformation.”
Crypto lending is still a regulatory gray area. US market regulators believe many of the products should be treated as securities, subject to strict rules to ensure investor protection.
In February, BlockFi, a competitor to Celsius, was fined $100 million by the Securities and Exchange Commission and 32 states who charged it with violating securities laws. Celsius itself has received cease and desist letters from four US states.
Vijay Ayyar, head of international at crypto exchange Luno, said Celsius’s decision to suspend withdrawals exacerbated the sell-off in cryptocurrencies, which have already come under pressure due to concerns about rising inflation and higher interest rates.
“The Luna/Terra debacle may have a lot of hidden skeletons in the closet that we may see coming out now,” Ayyar told CNBC.
“Confidence in these yield products is definitely compromised and we will likely see widespread regulation of such products in the near future.”
Nexo, another crypto lending company, said it sent Celsius a letter on Sunday offering to purchase its secured loan portfolio, but the company declined.
“As a show of goodwill and in an attempt to support the digital asset ecosystem during these trying times, we reached out to the Celsius team yesterday to offer our support, but our help was declined,” said Antoni Trenchev , CEO of Nexo, told CNBC.
“We firmly believe that much can be done to help Celsius customers in a number of ways.”