Bitcoin tumbled today after major US crypto lending firm Celsius Network froze withdrawals and transfers citing “extreme” conditions, in the latest sign of how financial market turmoil is causing trouble in the cryptosphere.
The Celsius move sparked a slump in cryptocurrencies, with their value falling below $1 trillion on Monday for the first time since January last year, dragged down by an 11% drop in the largest token, bitcoin.
After the Celsius announcement, Bitcoin hit an 18-month low of $23,476. The No. 2 token, Ether, fell as much as 16% to $1,177, its lowest level since January 2021.
Crypto markets have slumped in recent weeks as rising interest rates and rising inflation hurt riskier assets in financial markets.
The May crash of the terraUSD and luna tokens also rocked the industry.
“It is still an uncomfortable time and there is some risk of contagion around crypto in general,” said Joseph Edwards, head of financial strategy at fund management firm Solrise Finance.
Celsius offers interest-earning products to customers who deposit cryptocurrency on its platform and then lend cryptocurrency for a return.
In a blog post, the company said it froze withdrawals, as well as transfers between accounts, “to stabilize liquidity and operations while we take steps to preserve and protect assets.”
“We are taking this action today to put Celsius in a better position to meet its retirement obligations over time,” the New Jersey-based company said.
The surge in interest in crypto lending has raised concerns from regulators, especially in the United States, who are concerned about investor protection and systemic risks from unregulated lending products.
Celsius and crypto firms that offer similar services to banks are in a “grey area” of regulations, said Matthew Nyman of law firm CMS.
“They are not subject to any clear regulation requiring disclosure” of their assets.
Celsius CEO Alex Mashinsky and Celsius did not immediately respond to Reuters requests for comment outside US business hours.
Celsius raised $750 million in funding in late November from investors including Canada’s second-largest pension fund, Caisse de Dépôt et Placement du Québec. Celsius was valued at the time at $3.25 billion.
As of May 17, Celsius had $11.8 billion in assets, its website said, more than half less than October, and had processed a total of $8.2 billion in loans.
Mashinsky, the CEO, was quoted in October last year as saying that Celsius had more than $25 billion in assets.
The company’s website, which urges customers to “Earn big. Borrow little,” said it offers interest rates of up to 18.6%.
Rival crypto lender Nexo said on Monday that it had offered to buy the outstanding assets of Celsius.
“We reached out to Celsius on Sunday morning to discuss the acquisition of their secured loan portfolio. So far, Celsius has chosen not to commit,” said Nexo co-founder Antoni Trenchev.
Celsius did not immediately respond to a request for comment on the Nexo offer.