New York — Bitcoin and other cryptocurrency prices fell on Monday after major crypto lenders virtually failed and stopped all withdrawals from the platform due to “extreme market conditions”.
This is the latest attention-grabbing collapse of the pillars of the cryptocurrency industry. These meltdowns have wiped out the assets of tens of billions of dollars of investors and spurred an urgent call to regulate the bohemian industry.
Bitcoin traded at around $ 23,400 on Monday afternoon, down more than 16% the day before. Ethereum, another widely followed cryptocurrency, has fallen by more than 20%. Investors have sold higher-risk assets such as digital currencies and technology stocks as the Federal Reserve raises interest rates to combat high inflation.
On Sunday, the cryptocurrency lending platform Celsius Network announced that it would suspend all withdrawals and transfers between accounts in order to “respect withdrawal obligations in the long run.” With about 1.7 million customers and more than $ 10 billion in assets, Celsius did not indicate in his announcement when users would have access to their funds.
In exchange for customer deposits, the company pays very generous yields, with some accounts paying over 19%. Celsius receives those deposits and rents them out to generate revenue.
Lending platforms such as Celsius have been scrutinized recently because they offer yields that the normal market cannot support, and critics effectively call them Ponzi schemes.
This is the second most notable collapse in the crypto world in less than two months. Stablecoin Terra exploded in early May, erasing tens of billions of dollars within hours. Stablecoin has been considered relatively safe because it is supposed to be backed by hard assets such as currency and gold.
Like Terra, Celsius sold himself as a safe place for crypto holders to deposit their funds. Even while Celsius was failing, the company’s website advertised that users could “access your coins at any time and keep them safe forever.”
“Because we are considering different options, it requires a lot of work, and this process can be time consuming and lagging,” Celsius said in a statement.
This move has surprised investors and depositors. In online chat, they questioned why the investment wasn’t protected.
It is unclear if Celsius depositors will regain all their funds. Cryptocurrency lenders are not as regulated as banks, so there is no deposit insurance or legal framework for who gets the money first like bankruptcy. Celsius investors, including Quebec pension funds, may regain their investment before Celsius depositors.
“This was another run on the bank. We haven’t reinvented anything here. They advertised their service as a better savings account, but in the end you’re just unsecured. “I’m a lender,” said Cory Klippsten, CEO of Swan Bitcoin, who was openly skeptical of Mr. Seth’s business model for years.
Terra and its token Luna offered similar yields on customer deposits. These tokens collapsed after a major withdrawal of customers forced Terra operators to liquidate all assets used to support the currency. The collapse of Terra has spurred reform demands from the cryptocurrency industry and demanded parliamentary regulation.
Bitcoin plunges when major cryptocurrency lenders stop operating
Source link Bitcoin plunges when major cryptocurrency lenders stop operating