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By Khristopher J. Brooks
June 13, 2022 / 3:56 PM / MoneyWatch
Amid a deepening sell-off in cryptocurrencies, two popular platforms blocked investors from buying and selling the digital assets.
Crypto-lending company Celsius late Sunday said it was halting users from making withdrawals, trades and transfers between accounts “due to extreme market conditions.” The company, one of the bigger cryptocurrency lending platforms with roughly 1.7 million customers and more than $11 billion in customer assets, didn’t immediately respond to a request for comment Monday.
Hours after the Celsius announcement, Binance became the second platform to pause transactions. CEO Changpeng Zhao tweeted Monday there would be a 30-minute pause on bitcoin withdrawals “due to a stuck transaction causing a backlog.” That halt was extended, but trading later resumed on Monday.
.@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2
The trading suspensions come amid a $1 trillion loss in cryptocurrencies in the last two months alone, according to Reuters. Some investors are shying away from risky investments in favor of more stable assets amid deepening economic worries and as the economy grapples with the highest inflation in 40 years.
The shutdown at Celsius sparked anger and frustration on social media, with the company giving no indication in its announcement when it would allow users to access their funds.
“This is not okay. You’re losing trust with your patrons and NOT ACTING IN THE BEST INTEREST OF YOUR COMMUNITY!” one person wrote to Celsius in response to their trading halt announcement.
The total of market value of cryptocurrencies plunged below $1 trillion on Monday to $983 billion, the first time it has dropped below that mark since January 2021, according to CoinMarketCap.
The situation prompted some social media users to compare Celsius to Robinhood, the trading platform that restricted customers from transactions in so-called meme stocks in early 2021 amid wild swings in their prices. That decision prompted congressional hearings and scrutiny from regulators.
It’s unclear whether Celsius depositors will get all their funds back. A cryptocurrency lender is not regulated like a bank, so there’s no deposit insurance and no legal framework for who gets their money back first, like in a bankruptcy. It’s possible that Celsius’ investors, which include Quebec’s pension fund, may get their investment back before Celsius’ depositors will.
“This was yet another bank run. You’re not reinventing anything here. They were promoting their services as a better savings account but in the end you’re just another unsecured lender,” said Cory Klippsten, CEO of Swan Bitcoin, who has been publicly skeptical of Celsius’ business model for years.
Lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support, and critics have called them effectively Ponzi schemes. It is the second notable collapse in the cryptocurrency universe in less than two months. The stablecoin Terra imploded in early May, erasing tens of billions of dollars in a matter of hours.
Celsius said it had “activated a clause in our Terms of Use” that allows it to halt trading.
“We understand that this news is difficult, but we believe that our decision to pause withdrawals, Swap, and transfers between accounts is the most responsible action we can take to protect our community,” Celsius said in a statement. “We are working with a singular focus: to protect and preserve assets to meet our obligations to customers.”
This is only impacting the Bitcoin network. You can still withdraw Bitcoin on other networks like BEP-20.
Likely this is going to take a bit longer to fix than my initial estimate. More updates soon. Thanks for your patience and understanding🙏
The most popular cryptocurrencies — including ether, solana and tether — have lost value in the sell-off. In June alone, ether has fallen 7%, while bitcoin has lost 6% of its value. Bitcoin has fallen to its lowest price since December 2020, Bloomberg News reported.
Those declines are impacting crypto-focused companies including Crypto.com and Coinbase. Crypto.com plans to lay off 260 employees, or 5% of its workforce, company CEO Kris Marszalek said in a tweet Friday.
Marszalek didn’t directly blame the crypto market slump for the layoffs, but he tweeted “the markets will turn and when they do, you can be sure that we will be ready to drive and capture the next wave of growth for cryptocurrency adoption.”
That means making difficult and necessary decisions to ensure continued and sustainable growth for the long term by making targeted reductions of approximately 260 or 5% of our corporate workforce.
Coinbase last month reported a $430 million first-quarter loss as active monthly users declined 19%. The company also instituted a hiring freeze this month, adding that some job offers may even be rescinded.
Earlier this month, Gemini said it plans to lay off 10% of its staff, marking the first time the company has ever had to cut jobs, Bloomberg News reported. Crypto platforms Bitso, Buenbit, and Mercado Bitcoin have also slashed staff.
—With reporting by the Associated Press.
Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
First published on June 13, 2022 / 3:56 PM
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