(Bloomberg) — Celsius Network Ltd. paused withdrawals, swaps and transfers on its platform, fueling a broader market selloff as traders continued to question the sustainability of high-yielding crypto products in the wake of the Terra blockchain collapse.
Crypto markets slumped after the announcement, with Bitcoin dropping to the lowest level since December 2020 and other major tokens like Ether also falling sharply. Celsius’s CEL token was down 51% to 18.9 cents as of 2:11 p.m. in Hong Kong, according to pricing data site CoinGecko.
Doubts about the sky-high yields backing products such as those Celsius offers have intensified after Terra’s collapse in May and as tighter monetary policy from global central banks curbs demand for riskier assets. The CEL token promises “actual financial rewards,” including as much as 30% extra returns weekly, according to its website.
A little over a day before the announcement, Celsius Chief Executive Officer Alex Mashinsky appeared to counter speculation about a freeze on withdrawals, tweeting “Mike do you even know one person who has a problem withdrawing from Celsius?” in response to a post by Mike Dudas, a crypto investor and co-founder of The Block.
In announcing the freeze, Celsius said: “We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.” It added that users will continue to accrue rewards during the pause.
The announcement landed in the midst of turmoil in crypto markets, with worse-than-expected US inflation data on Friday stoking expectations of faster interest rate increases, hitting riskier assets like digital tokens. Bitcoin has tumbled 45% this year, while Ether has lost almost two-thirds of its value.
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“The Celsius news added fuel to the fire, adding to the uncertainty in the market,” said Vijay Ayyar, vice president of corporate development and international at crypto platform Luno. “There is a lot of pressure on prices as we go into the week of Fed decision coupled with concerns on the protocols offering high-yield products.”
Tokens linked to lending and borrowing protocols underperformed on Monday, with their overall value down 10% compared with a 6.4% drop in the broader crypto universe, according to CoinGecko. Celsius peers Aave, Maple and Compound slumped 12%, 15% and 13%, respectively.
Ethereum blockchain data shows that the largest single digital wallet holding CEL tokens is a wallet that belongs to Celsius itself, with more than 184 million CEL tokens, or 26.6% of the total supply in circulation. Mashinsky clarified in a weekend tweet that Celsius hadn’t been selling the token.
The collapse of the TerraUSD stablecoin and its sister token Luna in early May spawned widespread skepticism of the juicy returns crypto lenders like Celsius and decentralized-finance platforms have been promising investors. Anchor, a project linked to the Terra ecosystem, had offered yields of roughly 20% before TerraUSD, or UST, crashed.
“The plunge of Celsius’s token $CEL seems to be a realization of the contagion risk of UST/LUNA into similar financial tools,” said Burak Tamac, senior analyst for regulatory and on-chain at CryptoQuant.
(Updates with Mashinsky tweet in fourth paragraph)
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