- Leading crypto lender Celsius froze withdrawals and transfers on Monday due to "extreme market conditions."
- Cryptocurrencies tanked at the weekend, and bitcoin is now trading at it lowest since December 2020.
- "We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations," Celsius said.
Major crypto lender Celsius Network has frozen all withdrawals, swaps and transfers between accounts, after digital assets tanked over the weekend.
Bitcoin fell more than 22% from its late Friday level, and cryptocurrencies slid across the board, as investors shunned riskier assets. The crypto market is now close to falling below $1 trillion in market value for the first time since February 2021.
"Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts," Celsius said in a blog post Monday.
"We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets," it added.
Celsius is a decentralized finance platform that offers customers high yields for token deposits, which it lends to other crypto companies. It managed $11.8 billion in assets as of May 17, The Wall Street Journal reported, and it says it has 1.7 million users.
The Celsius freeze revived investor worries about the stability of crypto markets, when confidence took a hefty knock from the collapse of algorithmic stablecoin TerraUSD and its sister token luna in May.
Celsius' token, cel, nosedived 49% in the wake of the news about the pause, to trade at 20 cents Monday, according to CoinMarketCap data.
The news weighed further on the wider crypto market, which saw bitcoin, ether, cardano, solana, and dogecoin fall sharply over the weekend.
On Monday, bitcoin plunged to its lowest since December 2020, trading below $25,000 at one point, according to CoinMarketCap. Meanwhile, ether sank 15.8% to trade at $1,234.93, set for its largest one-day fall in a year.
"Many think it is mainly due to fear surrounding the insolvency risk of one of the biggest lending platforms Celsius," GlobalBlock strategist Marcus Sotiriou said.
"They were heavily exposed to UST with around $500 million of client funds, and also lost around $50 million when DeFi protocol Badger DAO was exploited," he added.
Celsius did not respond to an Insider request for comment.
But Sotiriou also noted the crypto rout is being driven by increasing investor concerns over the Federal Reserve's planned interest-rate rises to tackle red-hot inflation. Data on Friday showed US inflation in May was 8.6%, its highest rate since December 1981, which could spur the central bank to act more aggressively.
"I think this is a bigger contributor to the decline we have seen, as it results in a more hawkish Federal Reserve — they are now forced to remove more liquidity from the market in order to bring down inflation. When liquidity is removed, risk-on assets are hit the hardest, which includes crypto," he said.
Regulators have expressed concern about Celsius for its promised high returns, with some even likening it to a Ponzi scheme. Last year, New Jersey, Texas, and Alabama acted against Celsius, slapping the company with a cease and desist order, per Bloomberg.
Celsius said it hoped to lift the freeze as quickly as possible, but didn't give a timeframe.
"There is a lot of work ahead as we consider various options, this process will take time, and there may be delays," it said.