Celsius, a controversial cryptocurrency lending platform, said Monday it was pausing all withdrawals, causing more pain in the fragile crypto market.
Celsius is one of the largest players in the nascent crypto lending space, with more than $8 billion lent out to clients and almost $12 billion in assets under management as of May. The group, which offers users higher-than-average interest rates on their deposits, is essentially the crypto equivalent of a bank — but without the strict insurance requirements faced by traditional lenders.
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts,” the company said in a memo to clients on Monday.
The move has raised concerns about Celsius’ solvency. The firm has seen the value of its assets more than halve since October, when it handled $26 billion in client funds. Celsius’ cel token has also erased 97% of its value in the same timeframe. Celsius is the biggest holder of cel, a token it encourages people to buy to earn rewards and get discounts on lending rates.
Celsius was not immediately available for additional comment on the situation when contacted by CNBC.
Bitcoin and other cryptocurrencies took a beating on the news. The world’s biggest digital asset tumbled 15% to $23,325, according to Coin Metrics data, falling to lows not seen since December 2020. Ether dropped 17% to $1,225, while Celsius’ cel token plunged more than 38%.
It comes hot on the heels of the $60 billion meltdown of hyped stablecoin terraUSD. The collapse heightened 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 meant to be worth $1.
Market participants have suggested that Celsius had exposure to the now-collapsed terraUSD stablecoin. Celsius has denied this.
Just last week, the company said it had not had any issues meeting withdrawal requests. Celsius said it had the reserves and “more than enough” of the cryptocurrency ether, to meet obligations.
In April, Celsius boss Alex Mashinsky told CNBC his company holds on average 300% collateral for each loan it offers to retail investors, while for institutional investors it issues undercollateralized loans.
“We’ve been doing this for five years now, longer than anybody else,” he said at the time. “The business is doing very well.”
Hours before announcing a freeze on account withdrawals, Mashinsky lashed out at a crypto investor raising concerns with Celsius.
“Do you know even one person who has a problem withdrawing from Celsius?” Mashinsky asked, before accusing the investor of spreading “misinformation.”
Crypto lending is still very much a regulatory gray area. U.S. market regulators believe many of the products should be treated as securities subject to strict rules to ensure investors are protected.
In February, BlockFi, a competitor to Celsius, was hit with a $100 million penalty from the Securities and Exchange Commission and 32 states, which charged it with violating securities laws. Celsius itself was sent cease-and-desist letters from four U.S. states.
Vijay Ayyar, head of international at crypto exchange Luno, said Celsius’ decision to pause withdrawals had exacerbated the sell-off in cryptocurrencies, which have already come under pressure due to concerns around rising inflation and higher interest rates.
“The Luna/Terra debacle potentially has a lot of hidden skeletons in the closet, which we’re now potentially seeing come out,” Ayyar told CNBC.
“The trust in these yield products is definitely impacted and we’re probably going to see widespread regulation on such products in the near term.”
Nexo, another crypto lending firm, said it sent Celsius a letter Sunday offering to acquire its collateralized loan portfolio, but the company declined.
“As a sign of goodwill and in an attempt to support the digital asset ecosystem in these difficult times, yesterday we reached out to the Celsius team to offer our support, but our help was refused” Antoni Trenchev, Nexo’s CEO, told CNBC.
“We firmly believe that much can be done to help Celsius’ clients in various different ways.”
Celsius’ troubles have reignited worries over the risk of a broader market contagion from cryptocurrencies. Tether, the world’s biggest stablecoin, hovered below its $1 peg Monday on several major exchanges as investors fled the token. Celsius borrowed $500 million in tether tokens, posting bitcoin as collateral.
Tether, which made an equity investment in Celsius, said it wouldn’t face any fallout from its involvement on the stablecoin’s reserves.
“Tether lending activity with Celsius (as with any other borrower) has always been overcollateralized and has no impact on our reserves,” the company said in a statement Monday.
The manager of Canada’s second-largest pension fund, the Caisse de dépôt et placement du Québec, and Westcap, a growth-stage investor with over $8 billion in assets under management, have also made investments in Celsius.
CDPQ said it is “closely monitoring the situation.” “Celsius has been impacted by very difficult markets in recent weeks, more specifically, the strong volume of withdrawals by customers,” a CDPQ spokesperson told CNBC. “Celsius is taking proactive action to uphold its obligations to its customers (Celsius community) and has honoured its obligation to its customers to date.”
A representative for Westcap did not immediately return a request for comment.