Cryptocurrency lender Celsius Network has stopped all withdrawals, imperiling the savings of 100,000 users. From The Wall Street Journal:
A few months ago, Mike Washburn’s cryptocurrency investment looked like a winner.
Now he’s just hoping to get his money back.
Mr. Washburn, a 35-year-old plumber in Otsego, Minn., had $100,000 in an account at Celsius Network LLC, one of the largest lenders in the cryptocurrency world. Recently widowed, Mr. Washburn said he and his two children moved in with his parents, and he planned to buy a house with his savings. The Celsius account offered him yield higher than would a traditional bank account, and the company was well-known in the crypto community.
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Celsius promised rates of over 18%, versus around 1% in a traditional bank account. Users flocked to the platform, perhaps unaware of the risk compared to a traditional bank.
The assets Celsius holds to pay those high rates plummeted in value as crypto markets crashed this year. And some of its investments are only semiliquid, making it difficult to meet redemption requests from depositors.
Yesterday, certain investors tried to engineer a short squeeze in Celsius tokens.
It caused some run-up in the price, but the tokens remain down over 75% in the last year. I would expect this attempt to fail in the long term, given the overall instability of the Celsius platform.
Some savers may have looked at the 18% Celsius was offering, noted that it was 18 times as much as the bank, and piled in. But comparing a crypto lending product to a US bank account is “apples and bowling balls.”
A bank account provides FDIC insurance for up to $250,000. What’s more, any interest is paid in US dollars, a much more stable currency than most crypto tokens.
I think Celsius is finished as a platform.
Any deposit-taking institution operates on trust. Even if it weathers the current storm and manages to stay solvent, who will trust Celsius with their money in the future?
The even greater impact of the Celsius implosion will be on crypto regulation. The industry has often tried to avoid regulation, espousing a libertarian ethos.
That ends when plumbers in Minnesota are losing their life savings. Once their constituents are losing everything and barraging their representatives with phone calls, politicians become motivated to investigate and pass new laws.
What’s more, pols and regulators see opportunities to make names for themselves by sticking it to unsympathetic crypto fat cats.
It may take several years, but expect stiff regulations on cryptocurrency to come out following this crash.
I expect crypto lending and stablecoins to be the first targets for regulation. They are the most similar to the heavily regulated banking industry in that they take deposits and aim for stability.
What do you think is next for Celsius and the crypto market at large? Leave a comment at the bottom and let me know.
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Photo: “Alex Mashinsky / GroundLink” by Elliottng is licensed under CC BY-NC-SA 2.0.
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