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Not too long ago, crypto firms were buying Super Bowl ads and the naming rights to iconic sports stadiums. Now, they’re lucky if they can afford a seat in the nosebleeds.
The turmoil engulfing the sector has deepened in the past several days, highlighted by an ominous announcement by the Celsius Network, a leading crypto lender that was last valued at more than $3 billion.
Late Sunday night, the company froze all withdrawals and transfers due to “extreme market conditions.” It said it was taking the step to put it in a better position down the road to allow customers to withdraw their money.
The warning puts a spotlight on the murky world of interest-bearing crypto products that have surged in popularity over the past several years. Here’s how Celsius works:
- Customers can deposit crypto into Celsius in exchange for shockingly high yields. Celsius’s website advertises annual returns of up to 18.6%, putting the return on government bonds or standard saving accounts to shame.
- Celsius invests or loans out those deposits to other users in order to make money and pay out the interest.
Regulators have started to crack down on yield-bearing crypto products. States such as New Jersey and Texas targeted Celsius last year, alleging that its interest-bearing accounts are equivalent to an unregistered securities offering. And Coinbase shelved its planned crypto lending product after the SEC started investigating it.
Big picture: Celsius’s freeze sent another chill through a crypto market that’s already on the verge of frostbite. The total value of cryptocurrencies fell below $1 trillion yesterday for the first time since January 2021. And the layoffs keep coming: Crypto.com (which employed Matt Damon to assert that “fortune favors the brave”) said it was cutting nearly 5% of its workforce, while the crypto lending startup BlockFi is laying off about 20% of its staff.—NF