The fast and furious crypto selloff in June 2022 has resulted in a dash for the exits. However, crypto holders who use the Celsius platform may find that the virtual doors are closed off with no way to escape.
In late June, Celsius announced a freeze on all transactions, including withdrawals. This leaves its clients stuck in limbo as the crypto platform struggles to prevent further losses with the ongoing decline in bitcoin price.
Celsius, a crypto lender that functions like a virtual bank and promises higher interest rates and a lack of interference from regulators, has made $8 billion in loans and currently has $12 billion in assets under management. However none of its clients can currently use these funds, since Celsius has stopped transactions.
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap and transfers between accounts,” the company stated in a memo to clients, according to a report by CNBC.
The move has led some in the industry to suspect that Celsius may not have the funds to pay client withdrawals. After all, CEL, its proprietary cryptocurrency token, had lost 97% of its value and there is speculation that it had significant holdings in stablecoin USD, which was also wiped out.
Nexo, another crypto currency platform, made overtures to Celsius in “a gesture of goodwill and an attempt to support the crypto currency ecosystem,” and offered to purchase its entire loan portfolio, but Celsius rejected the offer and insisted that its decision to stop client transactions wasn’t due to insolvency. Celsius maintained that it has 300% collateral on every loan it offers.
Alex Mashinsky, founder and CEO of Celsius, who famously sports a t-shirt saying “Banks Are Not Your Friends,” seemed eager to persuade the public that Celsius is fine — it’s just the crypto market that is experiencing turbulence.
“We have been doing this for five years, longer than anyone else.” Mashinsky’s statement to CNBC, however, is a bleak reminder that five years in the crypto industry is extensive experience, indicative of how new and unfamiliar the world of cryptocurrencies is.
It’s anyone’s guess when Celsius will release funds to clients, allow transactions or if it will face prosecution. There is some talk of its receiving a cease and desist order, similar to fellow crypto lender and competitor, BlockFi, which was hit with a $100,000 fine from the U.S. Securities and Exchange Commission and cease and desist orders in 32 states for securities violations.
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