Bitcoin Falls 14% After Crypto Lender Celsius Network Freezes Withdrawals

Bitcoin slumped 14% on Monday after major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers citing "extreme" conditions, in the latest sign of the financial market downturn hitting the cryptosphere.

The Celsius move triggered a slide across cryptocurrencies, with their value dropping below $1 trillion on Monday for the first time since January 2021, dragged down by bitcoin, the largest token.

New Jersey-based Celsius, which has around $11.8 billion in assets, offers interest-bearing products to customers who deposit cryptocurrencies with its platform. It then lends out cryptocurrencies to earn a return.

After Celsius's announcement, bitcoin touched an 18-month low of $22,725, before rebounding slightly to around $23,924. No.2 token ether dropped as much as 18% to $1,176, its lowest since January 2021.

"It's still an uncomfortable moment, and there's some contagion risk around crypto more broadly," said Joseph Edwards, head of financial strategy at fund management firm Solrise Finance.

Crypto markets have dived in the past few weeks as rising interest rates and surging inflation prompted investors to ditch riskier assets across financial markets.

Markets extended a sell off on Monday after U.S. inflation data on Friday, which showed the largest price increase since 1981, prompting investors to raise their bets on Federal Reserve rate hikes.[MKTS/GLOB]

Cryptocurrency investors have also been rattled by the collapse of the terraUSD and luna tokens in May which was shortly followed by Tether, the world's largest stablecoin, briefly breaking its 1:1 peg with the dollar.

In a blog post on Monday, Tether said that while it has invested in Celsius, its lending activity with the crypto platform has "always been overcollateralized" and has no impact on Tether's reserves. The token was last trading flat at $1.

Also on Monday, BlockFi, another crypto lending platform, said it was reducing its staff by about 20% due to "dramatic shift in macroeconomic conditions worldwide." BlockFi said that it has no exposure to Celsius and has "never worked with them".

Bitcoin, which surged in 2020 and 2021, is down around 50% so far this year. Ethereum is down more than 67% this year.

Celsius CEO Alex Mashinsky and Celsius did not immediately respond to Reuters requests for comment.

CRYPTO LENDING

Celsius says on its website that customers who transfer their crypto to its platform can earn an annual return of up to 18.6%. The website urges customers to "Earn high. Borrow low".

In a blog post on Sunday evening, the company said it had frozen withdrawals, as well as transfers between accounts, "to stabilise liquidity and operations while we take steps to preserve and protect assets."

"We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations," the company said.

Celsius's Token, which crypto borrowers and lenders on its platform could earn interest on or pay interest in, has fallen about 97% in the last 12 months, from $7 to around 20 cents, based on CoinGecko data.

'GREY AREA'

Crypto lending products have surged in popularity and many companies have launched offerings within the last year.

That has sparked concerns among regulators, especially in the United States, who are worried about investor protections and systemic risks from unregulated lending products.

Celsius and crypto firms that offer services similar to banks are in a "grey area" of regulations, said Matthew Nyman at CMS law firm. "They're not subject to any clear regulation that requires disclosure" over their assets.

Celsius raised $750 million in funding last year from investors, including Canada's second-largest pension fund Caisse de D?p?t et Placement du Qu?bec. Celsius was valued at the time at $3.25 billion.

As of May 17, Celsius had $11.8 billion in assets, its website said, down by more than half from October, and had processed a total of $8.2 billion worth of loans.

Mashinsky, the CEO, was quoted in October last year saying Celsius had more than $25 billion in assets.

Rival crypto lender Nexo said on Monday it had offered to buy Celsius' outstanding assets.

"We reached out to Celsius Sunday morning to discuss the acquisition of its collateralised loan portfolio. So far, Celsius has chosen not to engage," said Nexo co-founder Antoni Trenchev.

Celsius did not immediately respond to a request for comment on Nexo's offer.