Celsius Network Ltd., which for years touted itself as the “world’s leading crypto earning and lending platform,” is freezing all withdrawals and transfers between its 1.7 million customers, as tokens such as bitcoin continue to plunge and investors rush to exit the digital asset market.
Citing “extreme market conditions,” the New Jersey-based company said in a blog post that a risk management clause about withdrawal obligations in its terms-of-use agreement has been activated indefinitely. That means customers are unable to pull their money out of Celsius, as the unregulated crypto exchange has decided to halt all transactions. As of May, the company held more than US$11-billion in assets.
“There is a lot of work ahead as we consider various options, this process will take time, and there may be delays,” Celsius said late Sunday. “Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap and transfers between accounts as quickly as possible.”
Major cryptocurrencies tumbled on Monday following the Celsius announcement. Bitcoin touched an 18-month low of $30,349. Ether dropped as much as 16 per cent to $1,585, its lowest price in two years.
While investing and holding cryptocurrencies remains the most common way of entering the digital asset market, many companies have also been offering customers avenues to earn interest on their investments in recent years.
These companies function much like traditional lenders such as banks or credit unions, but they lend cryptocurrency, such as dogecoin, instead of a fiat currency, such as the dollar. Investors get crypto dividends based on amounts that the companies lend to borrowers and the lenders can take up crypto loans from different platforms.
Celsius is one of many such crypto lenders and quickly became the most prominent. Founded in 2017, it has attracted major investors.
Just last October, Canadian pension fund giant Caisse de dépôt et placement du Québec invested US$400-million in Celsius as part of a funding round. It was an early move into the crypto world by an established Canadian pension fund manager. Shortly afterward, Ontario Teachers’ Pension Plan participated in a US$420-million funding round for the trading platform FTX Exchange that same month.
“Celsius is the world’s leading crypto lender with a strong management team that puts transparency and customer protection at the core of their operations,” Alexandre Synnett, executive vice-president and chief technology officer at the Caisse, said in a news release for its investment at the time.
But Jarrett Vaughan, a business professor at the University of British Columbia, who studies blockchains and cryptocurrencies, said it’s hard to see how institutional investors will not be scared away from the market by the Celsius announcement. “With risk can come reward, so if you’re investing into a risky environment like crypto, you have to be aware of something like this happening. And hopefully, now, that’s a risk you’ll be more aware of,” he said.
The Caisse’s investment, in partnership with San Francisco-based venture capital firm WestCap Investment Partners LLC, placed a total value of US$3-billion on Celsius. Other investors in Celsius include Tether International Ltd., an issuer of tether, a stablecoin cryptocurrency pegged to and backed by the U.S. dollar.
WestCap and Celsius did not respond to requests for comment.
In a statement to The Globe and Mail on Monday, Caisse defended Celsius. “In an environment of generalized market declines, investors are reducing their risk in all asset classes. In this context, Celsius has been impacted by very difficult markets in recent weeks, more specifically, the strong volume of withdrawals by customers,” wrote Kate Monfette, a senior spokesperson for the Caisse, adding that her team is “closely monitoring the situation.”
Ms. Monfette would not say if the Celsius announcement will impact future plans at Caisse for investments into cryptocurrency. “Celsius is taking proactive action to uphold its obligations to its customers and has honoured its obligation to its customers to date,” she said.
Ledn, a Toronto-based cryptocurrency lending company that works much like Celsius, has seen its digital assets under management grow to billions over the past three years. “I really hope this one-off item about Celsius does not lead to broad conservatism in the space, certainly not from investors,” said Adam Reeds, chief executive officer of Ledn, in an interview.
This is not the first time Celsius has faced scrutiny, however. Earlier this year, Celsius came under immense pressure from crypto market observers, who believed the company played a role in the dramatic meltdown of luna and terrasUSD cryptocurrencies. Celsius had disputed those claims.
Late last year, a month after Caisse’s investment, Celsius chief financial officer Yaron Shalem was implicated in a fraud investigation by Israeli police. The company suspended him.
In a tweet on Monday, rival lending platform Nexo offered to buy qualifying assets from Celsius, calling it an “insolvency” that is causing repercussions for retail investors in the crypto community.
Nexo attached a letter of intent to its tweet, which mentioned its interest in the Celsius collateralized loan portfolio, but did not provide a price for its offer.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.