2022 has not been crypto’s year so far. After a huge rise in November 2021, the crypto market has for the most part been on a downhill trend ever since. This was made extremely apparent at the start of May, when TerraUSD (UST) and $LUNA (Luna) collapsed, sending the entire crypto market in a downward spiral. Where there were originally hopes of a quick recovery, these are still yet to be seen as faith in crypto starts to waver.
In early June, the DeFi platform and crypto lender, the Celsius Network, announced it was pausing all withdrawals and transfers on its platform, impacting 1.7 million clients that use the network.
This comes at a time when crypto confidence has not been at its strongest – made clear by a statement issued by Celsius to its community:
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations.
“We are taking this necessary action for the benefit of our entire community in order to stabilise liquidity and operations while we take steps to preserve and protect assets. Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers.
“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. We are working with a singular focus: to protect and preserve assets to meet our obligations to customers. Our ultimate objective is stabilising liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible. There is a lot of work ahead as we consider various options, this process will take time, and there may be delays.
“We thank the incredible Celsius community for your support today. It is our pleasure to serve you. Our operations continue and we will continue to share information with the community as it becomes available.
The Celsius team”
Impact on the crypto market
The DeFi lending giant Celsius halting withdrawals has weighed on the broader crypto sector with Bitcoin, the world’s largest digital token plunging to the lowest in 18 months in Asia trading on June 13th. With this in mind, we heard from experts across the fintech community what this move meant for cryptocurrencies and its investors.
Nigel Green, the chief executive of deVere Group, an independent financial advisory, asset management and fintech organisation, issued a warning to DeFi investors:
“The wider crypto ecosystem has been rocked again – not by ‘real’ cryptocurrencies like Bitcoin, but by DeFi. There are legitimate and serious concerns about networks’ high yields, links to failed dollar-pegged stablecoin Terra, and reserves. The unprecedented move by Celsius is effectively blocking clients from accessing their assets which will do little to quell fears from critics that some DeFi platforms could be Ponzi schemes.
“I would urge people to exercise caution and scrutiny on crypto lending firms which offer clients lucrative double-digit yields on assets like Bitcoin and Ethereum.
“If it sounds too good to be true, it probably is.”
In its note to its customers, Celsius said its “ultimate objective is stabilising liquidity.” It did not give a date for when customers might expect to be able to withdraw again, warning that “this process will take time, and there may be delays.”
“The current issues facing Celsius will, inevitably, be used by crypto cynics to knock digital currencies,” continued Green. “The cryptocurrency critics will jump on this situation, as they always do when there is a chance to attack.
“However, I would argue many of the traditionalists are the same people who would have probably rebuffed the internet back in the 1990s and e-commerce giants such as Amazon as mere hype in the 2000s.
“As ever, you need to ask questions about high yield promises of DeFi lenders. But this issue will not prevent savvy investors from directly and securely investing into mainstream cryptocurrencies, like Bitcoin. They will appreciate the intrinsic value of digital, borderless, global currencies, which have already changed the way the world handles money, does business, makes transactions and manages assets.”
Looking at the larger crypto picture, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said, ‘’As inflation proves to be an even trickier opponent to beat than expected, Bitcoin and Ether are continuing to get a severe bruising in the ring. They are prime victims of the flight away from risky assets as investors fret about spiralling consumer prices around the world. The worry is that inflation is becoming too hot to handle by central banks who will be forced to douse economies with jets of freezing water, in the form of much steeper interest rate rises, to get it under control. With the era of cheap money coming rapidly to an end, traders are becoming much more risk-averse and turning their backs on crypto assets.
“The fresh fall in crypto was prompted after data in the US on Friday painted an even worse than expected picture of higher costs for consumers, with the CPI index coming in at 8.6 per cent. Bitcoin has fallen to below $25,000, dropping another 10 per cent in just 24 hours. It is back down to levels it was in December 2020, before the jagged ascent to the heady heights reached in November 2021 of more than $68,000. Ether dropped by another 13 per cent in 24 hours to below $1270. Crypto fans have become used to volatile rides, but these rollercoaster descents are increasingly hard to stomach. Bitcoin has lost 61 per cent while Ether has fallen by 72 per cent since their respective November highs.
“Red lines on a chart belie the financial pain which this loss of value is set to cause for millions of crypto holders. Data from the UK’s Financial Conduct Authority showed that 14 per cent of adults who had bought crypto during the pandemic had got into debt to do so. At a time when costs are escalating all over the place, nursing a big hole in a crypto wallet is the last blow they need. It’s a stark reminder that dabbling in the crypto wild west is highly risky and investments in such assets should only be at the edges of a portfolio, with money you can afford to lose.’’