Digital Banking

Cryptocurrency crashes as Celsius Network freezes crypto withdrawals

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June 14, 2022

Cryptocurrency took a major hit this week, as crypto firm Celsius Network announced it was freezing any customer withdrawals "to stabilize liquidity and operations while we take steps to preserve and protect assets." Crypto's total market value fell below $1 trillion this week and bitcoin's price fell by 13.7% to $23,500, according to a report by Barrons.

Due to this move by Celsius, billions of dollars in cryptocurrency is currently trapped inside the network. Celsius pays a yield on cryptocurrency deposits by reinvesting customer's assets into many decentralized finance measures. As a result if Celsius has to halt all operations, this could majorly hurt many cryptocurrency tokens, decentralized finance projects and digital assets.

Other investors fear that if Celsius doesn't reopen its deposits, then the entire cryptocurrency market could suffer. It is unknown why Celsius is having liquidity issues, but some have pointed to investments the company made into the Lido Staked Ethereum, which let investors lock Ethereum into a smart contract for yield. Recently, the price of staked Ethereum changed significantly from the underlying token, which could account for Celsius' liquidity issues.

Celsius currently holds about $1.5 billion in Staked Ethereum, which Marcus Sotiriou, an analyst for GlobalBlock said, "raises concerns that if clients try to redeem positions, Celsius will run out of liquid funds to pay them back."

Celsius, in turn, has said users will continue to earn interest on their deposits even if they can't withdraw currently.