- Trouble at VC-backed Celsius Network, one of the largest decentralized lenders in the cryptocurrency space, sent prices plunging.
- Crisis of confidence has taken the entire cryptocurrency industry below the US$1 trillion market cap.
Not so long ago, the market cap for Bitcoin alone was over US$1 trillion, and now the entire coterie of cryptocurrencies can’t even bust a trill.
As with so many things in the cryptocurrency sector, what started off as a spark has turned into a raging wildfire and exposed (yet again) some of the systemic weaknesses of the industry that has yet to be properly regulated.
While white hot U.S. inflation data may have fed the narrative in the selloff in cryptocurrencies from last Friday, news that one of the industry’s biggest lenders was freezing withdrawals sent prices into a tailspin.
Celsius Network, which was founded in 2017, wrote in an email to its customers that because of the market conditions, it would need to freeze withdrawals until further notice,
Concerns that one of the biggest lenders in crypto and a key player in the world of decentralized finance was pausing withdrawals, swaps and transfers, following weeks of speculation over its ability make good on promised outsized returns on its products, including yields as high as 17% sent the price of cryptocurrencies plummeting.
Bitcoin plunged to its lowest price in a over 18 months after the announcement by Celsius Network fueled rumors that the lender was systemically important and could accelerate the digital asset market meltdown.
Unlike in traditional finance, there are no relief valves such as exchange halts or any mechanism to stop the rout.
Nor is there a central bank or regulators who can step in to nationalize a crucial lender to restore confidence back to the system.
Unlike the collapse of TerraUSD and its sister token Luna, the implosion of Celsius Network would have far more implications for the industry because of the amount of Bitcoin and Ether that it held in custody on behalf of customers and what they ended up doing with it.
That race to sell off customer assets such as Bitcoin and Ether to meet obligations has resulted in the equivalent of a bank run.
Although Celsius Network had long derided banks, it operated as an unregulated one itself, enticing customers with staggering rates for deposits of cryptocurrencies and then loaning out those deposits to other customers.
The potential collapse of Celsius Network will have reverberations throughout the cryptocurrency sector, especially since the firm is a large, venture capital-backed entity which attracted a valuation of US$4.1 billion after its most recent Series B funding round last November.
