Run-on crypto as Bitcoin slumps and majore lender ‘pauses’ withdrawals

As Bitcoin drops to its lowest level since December 2020, markets are in chaos

After data on Friday showed that US inflation rose to a new 40-year high, traders are increasing their bets at a faster pace of Federal Reserve tightening. The Fed’s recent policy has been particularly harsh on cryptocurrencies. They have been struggling in the last few months. Confidence in the space has been further undermined by the collapse of Terra/Luna’s ecosystem and Celsius halting withdrawals Monday morning Asia-time.

Antoni Trenchev (co-founder and managing partner at crypto lender Nexo) stated that Cryptos are still subject to the Fed’s control and in a dance with other risk assets. “We are hearing Bitcoin forecasts in single-digit thousands and the mid-teens which shows you the kind of macro environment crypto is currently facing and the level of fear.”

Today Celsius, a cryptocurrency lender, has stated that “extreme market conditions have forced it to pause all withdrawals as virtual currencies crash at prices not seen since last January.”

New Jersey-based firm, which operates in a similar way to a bank and suspends all user trading, did so in the early hours of the morning.

Celsius managers wrote to their users: “We are taking the necessary action for our whole community in order to stabilize liquidity and operations.”

Celsius stated that its 1.7 million users would continue to receive rewards even though their accounts were frozen.

The announcement caused a slump in crypto markets, with Bitcoin falling to around $20,300, its lowest point since December 2020.

Ether, the second-largest cryptocurrency in the world, fell more than 8% to $1,303. This is its lowest level since March 2021.

According to CoinGecko, Celsius’s CEL token fell 73% overnight to $0.19. The token’s value was estimated at $3, according to data from April.

Celsius’s large size makes it accessible to large parts of crypto markets. The lender took out a loan of $500m from Tether last fiscal year. Tether, a stablecoin, is valued at the same rate as a real-world currency like the dollar. Tether’s value fell from $0.999 to $0.998 this morning.

According to its website, Celsius had processed loans worth $8.2bn and had $11.8bn of assets as of May 17. According to Reuters, Celsius claimed that it had more assets than $20bn last August.

The lender acts like a traditional bank, accepting deposits from users and paying interest. They also make loans in cryptocurrency.

This morning, a company advertisement on its website promised 18% returns on investments. It offered a range of trading instruments and token trading.

The Terra cryptocurrency crashed in May amid what was called a Black Wednesday on digital token markets.

Terra, a stablecoin similar to Tether, crashed cryptocurrency markets after a flaw in its design led to a decline in the value of a token related to Terra.

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