As Celsius accelerates the crypto sell-off, who pays the price?

Crypto falls below $1T as lending giant freezes withdrawals

Crypto markets were shaken as the not-so-stablecoin UST and sister cryptocurrency LUNA collapsed last month, bringing the digital asset economy down with them and exposing smaller, more vulnerable players.

Now, we’re seeing crypto whales like Celsius floating up to the surface for different reasons, causing the global crypto market capitalization to fall below $1 trillion for the first time since January 2021.

Late last night, Celsius, one of the largest centralized crypto lenders, announced it was pausing all withdrawals, swaps and transfers for users. The firm attempted to justify its actions by stating in a press release that it is “acting in the interest” of its community of about 2 million people and “to put Celsius in a better position to honor, over time, its withdrawal obligations.”

Celsius held over 151,000 bitcoin and had about $12 billion in assets under management as of May 17. The company even boasted in April that it owns more bitcoin than public companies like MicroStrategy, Tesla, Galaxy Digital, Square and Coinbase.

In the past, the firm made headlines for raising one of the biggest funding rounds in 2021, an oversubscribed $750 million, while simultaneously suspending (and later firing) its former chief financial officer, Yaron Shalem, for external fraud and sexual assault allegations in November of last year.

“You think there’s an arbitrage but what they’ve really done is sold volatility.” Cory Klippsten, CEO of Swan Bitcoin

The two largest cryptocurrencies by market cap, bitcoin and ether, have respectively fallen around 15% and 17% in the past 24 hours as sell-offs across the market continue and the Celsius situation exacerbates already bearish market sentiments.

What caused Celsius’ freeze?

There’s no firm answer at the moment, but many market participants indicated Celsius may be a riskier firm than many originally believed it to be, with some pointing toward a lack of confidence in its operations. That sentiment resulted in a bank-run scenario similar to what we saw last month with UST and LUNA: Investors didn’t want to get their cryptocurrency stuck on the platform and, in anticipation of a freeze or crisis occurring, they wanted to get out first.

“People were withdrawing their coins from Celsius and they didn’t have enough [liquidity] to meet redemption requests,” Cory Klippsten, CEO of Swan Bitcoin, said to TechCrunch. “If they had fulfilled all their redemption requests from users, they would be completely insolvent.”

Celsius CEO Alex Mashinsky did not respond to requests for comment by TechCrunch on Monday.