Celsius Crypto Lender Pauses Withdrawals, Contagion Fuels Market Crash

After weeks of uncertainty over the stability of the outsized returns given by the DeFi lending platform, Celsius Network Ltd. halted withdrawals, swaps, and transfers, prompting a global cryptocurrency selloff.

Following the Celsius decision, crypto markets plunged, with Bitcoin plummeting more than 14% to its lowest level since December 2020, and other key coins such as Ether also falling substantially. According to the pricing statistics platform CoinGecko, Celsius’s CEL token was down roughly 50% to 19 cents as of 7:16 a.m.

Before the collapse below $27,000, analysts, traders, and even economists from both crypto and traditional finance were mainly gloomy, but a historical study of Bitcoin and other cryptocurrencies suggests that the correction is far from finished.

The crash is the latest setback for DeFi, or decentralized finance, crypto’s alternative to traditional finance, which gives users more freedom and lower prices while also exposing them to more risk.

After the Terra, ecosystem collapsed in May, and as tighter monetary policy around the world restricts demand for riskier assets, doubts about the sky-high rates supporting products like those Celsius provides have grown. According to its website, the CEL token promises “actual financial rewards,” including up to 30% more weekly returns.

Although the TerraUSD (UST) stablecoin’s demise drew the majority of the market’s attention, one of the project’s key draws for investors was its promised interest rate, which was set as high as 20% for UST deposits in the Terra blockchain-based lending initiative Anchor. Celsius was one of the project’s backers. Both are based on the promise of ultra-high yields to maintain demand, which is reliant on a continual stream of new entrants feeding the system or borrowing to pay the high rates.

At the time of publication, Bitcoin was trading at $22,720 after dipping as low as $22,611 earlier.

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