On Sunday, crypto lending platform Celsius announced it was pausing all withdrawals, swaps, and transfers between user accounts, citing "extreme market conditions" as the crypto crash worsened over the weekend.
Celsius' move has helped continue the general cryptocurrency market selloff, with major coins like Bitcoin and Ethereum plummeting—BTC is currently trading at $23,809 and ETH $1,251—and Celsius' own token (CEL) plummeting from over 40 cents to 14 cents, before settling at just under 30 cents.
The disruption has been a psychological hit to investors. On the platform’s subreddit, one of the most popular posts is one promoting the Suicide Hotline as well as other mental health resources. It also features comments imploring people to reach out before harming themselves, and debates about who is at fault if money is lost.
All this comes about one day after an exchange between Celsius chief executive Alex Mashinsky and The Block co-founder Mike Dudas about Celius' solvency. "I hope retail can get out," Dudas wrote. "I’ve been hearing about accounts locked. That would be similar to LUNA. We shall see." Mashinsky dismissed this as "FUD" (fear, uncertainty, and doubt) and "misinformation."
“Mike do you know even one person who has a problem withdrawing from Celsius,” Mashinsky replied. “Why spread FUD and misinformation. If you are paid for this then let everyone know you are picking sides otherwise our job is to fight Tradfi together...”
Celsius is a lending firm that works similarly to banks, but with much higher risk since deposits are not federally insured. The platform lets you deposit crypto in exchange for abnormally high interest rates, up to 18 percent (a savings account typically nets 1 to 2 percent). To pay out such high rates, Celsius takes deposits and either invests them or lends them out to traders and charges a high rate for the loan. Celsius advertises that 1.7 million people have deposited with the service.
The business model has attracted a good deal of interest. In October, Caisse de Dépôt et Placement du Québec (CDPQ)—the second-largest pension fund in Canada, managing $300 billion—joined investment fund WestCap in a $400 million funding round that valued Celsius at $3 billion. As of May, Celsius lent out over $8 billion and had close to $12 billion in assets under management. CDPQ did not respond to a request for comment.
Despite the interest, Celsius has run into hard times and direct attacks on its business model by regulators. In August, Celsius announced its assets under management were worth nearly twice as much ($20 billion) and since October its token has lost about 97 percent of its value, going from $5.90 to $0.27. In September, Texas, New Jersey, and Alabama sued Celsius and accused it of offering unregistered securities via its high-yield crypto interest accounts. Celsius moved to countersue, but in April announced changes that would restrict access to these accounts for U.S. investors.
A host of Celsius investors took to social media to complain that the freeze meant they wouldn't be able to repay loans they'd taken out even though they were good for it.
“I have USDC in my account that I want to use to repay my loan that has a margin call right now, but I can't even repay the damn loan because of the transfer freeze,” one crypto trader said on Twitter. “That's ridiculous. If the market tanks, celsius will liquidate my collateral even though I can pay off my loan!!!”
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Already, a few in a similar situation say they have been liquidated. One user tweeted "this is not the reason I unbanked myself" and shared a screenshot of a notice that they were liquidated at 1:11AM because they couldn't resolve an outstanding margin call. Another trader tweeted a similar complaint: "These restrictions mean you can't resolve a margin call even when you already have sufficient spare funds in #Celsius,” and shared a screenshot of their inability to transfer ETH to prevent liquidation.
Some are simply ignoring the situation and hoping it goes away, others are utterly confused about whether or not they’ll be wiped out, but there seems to be no guidance coming from Celsius about when the situation will change.
Celsius did not respond to Motherboard’s request for comment.
Some observers expressed concern that a run on Celsius would have wider effects. Celsius has borrowed at least $1 billion in tokens from Tether, the company behind the largest stablecoin and key pillar of support for crypto markets. Tether denied that this posed a risk to its token.
“While Tether’s investment portfolio does include an investment in the company, representing a minimal part of our shareholders equity, there is no correlation between this investment and our own reserves or stability," the firm said in a statement. "Also Tether lending activity with Celsius (as with any other borrower) has always been overcollateralized and has no impact on our reserves.”
Overall it's clear that the crypto crash of May has not yet ended, and there could very well be more pain on the way. Many altcoins (tokens other than Bitcoin) are still hanging on by a thread, and even if long-term Bitcoiners typically don't concern themselves with even major price swings, a further tumble could harm market participants.
Coinbase's battered stock dropped another 10 percent today, while Microstrategy—the largest corporate holder of Bitcoin—has dropped more than 20 percent. MicroStrategy is of particular interest because of a $205 million Silvergate loan used to further increase its Bitcoin holdings. The loan requires $410 million in collateral and is backed by Microstrategy’s crypto holdings, requiring more collateral if Bitcoin falls below $21,000.
In any event, what happens next in crypto is a familiar story: Retail investors will get screwed, as they always do.