The latest jolt to cryptocurrency investors came on Tuesday, with bitcoin and ether plummeting to new 18-month lows following the halting of withdrawals by prominent crypto lending service Celsius Network.
The action by Celsius sparked a decline in the value of cryptocurrencies, which fell below $1 trillion for the first time since January last year on Monday, led down by an 11% loss in the most significant asset, bitcoin.
In a blog post published on Monday, Celsius said it had halted withdrawals and transfers between accounts “to stabilize liquidity and operations while we take efforts to maintain and protect assets,” citing adverse market conditions.
Celsius, situated in New Jersey, has roughly $11.8 billion in assets and offers consumers who deposit cryptocurrencies with its interest-bearing platform products. It then earns money by lending out cryptocurrency.
Regulators, particularly in the United States, are concerned about investor protections and systemic risks from unregulated lending products due to the spike in interest in crypto lending.
How does Celsius work?
In theory, Celsius functions similarly to a traditional bank, only in cryptocurrency. It takes deposits and then lends them to others. As of this writing, an advertisement on Celsius’s website advertised an 18.63 yearly percentage interest on crypto deposits. However, unlike a bank, Celsius does not have FDIC government insurance, which protects customers in the event of a bank failure.
Celsius Network, as skeptics have said, is doomed to fail. Celsius has even been accused of being a Ponzi scam by others.
Celsius stated in a blog post that its “ultimate aim is liquidity stabilization.” However, it didn’t say when clients would be able to withdraw money again, just that “this procedure will take time, and there may be delays.”
