As if investors in the crypto space weren’t already suffering enough due in large part to the Terra ecosystem crashing earlier last month – on Monday, June 13th, one of the largest crypto lending firms, Celsius, paused all of their account withdrawals. This had multiple negative effects – sending many investors into a panic – and a massive selloff ensued. This in turn caused Bitcoin to pull back to 18-month lows, or down around 15%. At the moment market sentiment is extremely low, to say the least, and according to the Bitcoin RSI chart, it is now at the lowest level in its 13-year history. This painful cascade led to the value of the entire crypto market sinking below $1 trillion for the first time since early January 2021.
To give you an idea of how big the company is and its potential impact on the crypto market – as of May 2022, the five-year-old company managed roughly $12 billion in assets and had a customer base of about 2 million. Celsius investors are rightly frustrated with the steps that were taken and this highlights some necessary weaknesses in the decentralized finance (Defi) movement; flaws that need to be addressed in some fashion. For instance, depositors utilizing traditional retail banks are protected by the FDIC (Federal Deposit Insurance Corporation) – put in place after the Great Depression – which guarantees customer protection up to $250,000 per account in case a bank should fail.
Similar to Terra’s high-interest yields, investors were lured by the promise of questionably high yield interest rates – sometimes as high as 30% – making it seem like an easy decision. Even before the crash, skeptics believed that yields this high were undoubtedly unsustainable, not to mention the total value of the assets stored on Celsius have fallen by 50% in the six months between November 2021 and May 2022.
Many people trusted their money to the platform but all too often in crypto, it seems as though too many investors do the one thing you should never do when investing in crypto – putting in more than you can afford to lose. Many investors seem to believe that the decision to freeze withdrawals to “stabilize liquidity” was a culmination of bad investments on Celsius’ part and won’t be investing anything more on the platform until they take a more conservative approach. That being said, that’s if they aren’t forced into a state of insolvency and are forced to go bankrupt because of this.
According to CNBC host and crypto influencer, Ran NeuNer (@cryptomanran), Celsius has 1,000 BTC in its coffers ready to sell off if it should come to that, at a liquidation price of $16,400 – so the company may just survive this ordeal after all. Hopefully, he’s right and such a hard lesson can be learned without all of the potential carnage that could “break the bank” for many retail investors.
Whatever Celsius decides to do, the clock is ticking, and with every day that passes by the more likeliness that their entire customer base will leave the platform for good.
