Another day, another crypto meltdown that has left the naysayers cackling, the investors griping, and the armchair pundits wondering whether the digital-asset frenzy is headed for a final collapse.
The latest culprit: five-year-old crypto startup Celsius Network, which as of last month claimed to have more than 1.5 million users and $11 billion in assets on its platform.
On Sunday the company announced that—surprise!—it would stop letting users withdraw, swap, or transfer their assets, citing “extreme market conditions.”
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“We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets,” the startup wrote in a public memo.
That decision prevented users from cutting their losses on crypto holdings that have trended down for weeks. Markets further plummeted Monday following the news; the price of bitcoin and ethereum slumped roughly 15 and 17 percent, respectively, as of Monday evening Eastern Time.
“The game is rigged, when they don’t win they change the rules every single time,” one aggrieved user tweeted in reply to the announcement.
“This is ridiculous. Done with Celsius. Let me withdraw and dissappear,” chimed in another.
Just a day before the lock-up, Celsius founder and CEO Alex Mashinsky had critiqued a Twitter commenter for spreading “FUD and misinformation,” with FUD being used as a shorthand for “fear, uncertainty, and doubt” by suggesting that the platform had begun locking accounts.
“Do you know even one person who has a problem withdrawing from Celsius?” Mashinky wrote.
Founded in 2017, Celsius offers a number of services but is best known for letting users deposit crypto assets to the platform with the opportunity to earn interest on their holdings—a feature that resembles elements of a conventional bank, albeit with far less regulation. The company advertises a wildly high potential annual yield of 18.63 percent and told users that they could “access your coins whenever.”
At least for the moment, that has proven not to be the case.
“I always tell people, you need to be careful about any investment product that promises you more than 3 percent a year,” said David Silver, a lawyer who specializes in cryptocurrency cases. “Someone who consistently says they can guarantee you payment is actually not fully representing their financial health.”
Celsius did not respond to a request for comment.
The looming question for retail investors is whether this kind of debacle will happen again. Many crypto holders knew they were gambling when they bought in, though maybe not to this degree.
Adding to the unease: Celsius told users that the decision to halt withdrawals fell cleanly within its terms of service, a move that likely would not be allowable in a traditional investing environment.
“Bank of America couldn't unilaterally stop withdrawals. Period, full stop. They couldn't,” said Stephen Palley, a partner at Anderson Kill in Washington, DC.
Now, Celsius has the power to determine when—or perhaps if—it will unfreeze accounts. In theory, the company could prioritize certain clients or insiders when it allows withdrawals on an individual basis, said Tim Swanson, head of market research at Clearmatics.
The irony, he added, is that many crypto players have heralded the decentralized nature of the digital asset market, even though “in practice, a lot of activity is still very centralized.” In the case of Celsius, just a “handful of identifiable people… are making key decisions behind the scenes (and) not transparently about what they're doing with customer funds.”
The Celsius news comes just a few weeks after another major crypto implosion, the Luna token, which caused tens of billions of dollars worth of losses.
In that case and others, “everyone knew these things were on very shaky ground, and the power of belief was basically keeping them up,” said Maya Zehavi, a crypto investor based in Israel who has been highly skeptical of Celsius’ business practices. “When Luna went down, Celsius was the first place I was looking.”
Celsius, which has previously come under regulatory scrutiny, appears to be illiquid rather than insolvent, noted Larry Cermak, vice president of research at the industry publication The Block. The platform, he said, has a history of operating in an “extremely opaque way.” That isn’t a problem when things are going well in the crypto market, but times have changed.
If it does remain solvent, the company will still have to face questions from angry investors who so far haven’t been able to pull out their funds.
Said Silver, the crypto litigator: “My phone has been ringing off the hook.”
