Cryptocurrency plunges as crypto “bank” Celsius suspends withdrawals

Monday was a big day for major Cryptocurrencies. Over the last 24 hours, ether is down 16 percent, whilebitcoin is down 14 percent. Solana, doge coin, and litecoin are all down by double digits.

A broader market sell-off is what happened when thecryptocurrencies crashed. The S&P 500 stock market index fell almost 4% on Monday as investors worried that the Federal Reserve would raise interest rates more quickly. All assets are affected by high interest rates.

The Monday announcement by Celsius that it was suspending withdrawals may have spooked the market. This was the result of extreme market conditions, according to the company.

Celsius is not regulated. Customers can deposit cryptocurrencies with Celsius. The company's website advertises interest rates as high as 18 percent for some Cryptocurrencies. Americans can't earn that much from conventional banks.

Celsius inspired loyalty from some of the platform's users, according to a January report.

In testimonials posted last year on Twitter as part of a contest in which customers shared their 'Celsius Story,' many said they had entrusted Celsius with their life savings. One said he took out home equity and cashed in his work pension and his savings for his kids’ education to put the money into the company’s accounts. Another said it let him quit his job to move closer to his kid.

Alex Mashinsky said in a January article that Celsius pays high yields because most of its earnings go to its users. The traditional financial system is ripping people off by taking their deposits, using them to make money, and then claiming it can only pay tiny interest rates.

Someone is lying. Either the bank is telling the truth or the other way around.

The Federal Deposit Insurance Corporation provides a financial backstop for deposits in conventional banks, but Celsius deposits are not. Some customers may not get all their money back if Celsius goes into financial trouble.

Celsius denied rumors that it was having financial difficulties.

It's unfortunate that vocal actors are spreading misinformation. They have tried to link Celsius to the collapse of Luna in order to make a false claim.

That was a reference to last month's news that terra was not stable in practice. Terra's value was supposed to be pegged to $1 and luna was supposed to provide a backstop. The entire house of cards crashed last month.

The last year has seen Celsius grow rapidly. Regulators in several states opened investigations into the company's business practices in September of last year.

The company suspended withdrawals due to the extreme market conditions. Users have reason to be concerned about the company's financial health, as Celsius claims it is working diligently to resume withdrawals.

The companies in the sector are expecting the recent price decline to last for some time.

About 5 percent of the company's workforce was laid off. The Winkelvoss brothers founded the Gemini exchange and announced it would be cutting its workforce. Market conditions that are likely to persist for some time were blamed by the brothers.

All new hires were recently frozen by one of the biggestcryptocurrencies companies. Job candidates had accepted some of the withdrawn offers. The stock price of the company has fallen since its peak.

Discussion about the start of another "crypto winter" has arisen from the steady drumbeat of bad news. Three of these periods have been experienced by the criptocurrency world. It's common for a lot of cryptocurrencies related projects to fail during this time of retrenchment.

The previous winters have been followed by a thaw and then a boom. After falling to around $3,200 in the late 18th century, it soared above $60,000 in the 21st century. The hope is that the current low price will lead to new records in the future.

There is no certainty that will happen. When the sector reaches a saturation point, it will start to behave like other conventional assets, rising during booms and falling during downturns, but not necessarily delivering outstanding returns for those who hold them.

Tim Lee worked at Ars for a number of years. Full Stack Economics was launched in 2021. His newsletter is available here.