Why Did Cryptocurrencies Drop? What Causes the Sharp Fall in Cryptocurrencies?
The price of Bitcoin and other cryptocurrencies has fallen hard since last weekend after a major cryptocurrency lending platform effectively failed and halted all withdrawals on the platform due to “extreme market conditions.” This recent high-profile crash, which left the cryptocurrency market a footing, has caused tens of billions of dollars of investor assets to evaporate and calls for an urgent regulation of the free-floating industry.
High Inflation, Rate Increase and Celsius Network
Bitcoin fell to $ 21 thousand 33 with a decrease of close to 20 percent earlier today. The largest altcoin Ethereum , on the other hand, lost about 25 percent and fell to $ 1,096. The Federal Reserve (Fed) has hawked and aggressively raised interest rates to combat high inflation, pushing investors away from riskier assets like cryptocurrencies and technology stocks to sell, but that’s not the only reason for the crypto market crash.
On Sunday, cryptocurrency lending platform Celsius Network announced that it has temporarily halted all withdrawals and transfers between accounts to “fulfill its withdrawal obligations over time.” Celsius, which has approximately 1.7 million customers and more than $10 billion in assets under management, did not provide any details on when users will be allowed to regain access to their funds.
The company offered its customers extremely generous interest rates of up to 19 percent on their deposits. Celsius took these deposits and made loans to earn a return.
Lending platforms like Celsius have come under scrutiny recently because they offer returns that normal markets cannot support, and skeptics have effectively called them Ponzi schemes.
Francisco Orduna, 36, is also one of the users who has a savings account with Celsius. Stating that he was directed to Celsius about a year ago, Orduna said that the company was interested in the promises of high returns on cryptocurrencies and said, “As users are used to these weekly interest payments from Celsius, it was easy to overlook the risk.” The victim, who withdrew most of his money from Celsius at the end of last week, said he still had some money left on the platform.
2nd Big Crash in 2 Months
The cryptocurrency market is currently going through a notable collapse recorded in the second month in the cryptocurrency industry in less than two months. Terra (LUNA) and the algorithmic stablecoin UST collapsed in early May, causing tens of billions of dollars to be wiped in a matter of hours. Stablecoins in the cryptocurrency market are seen as relatively safe as they must be backed by fixed assets such as fiat money or gold.
Just like UST, Celsius has marketed itself as a safe place for crypto holders to deposit their funds. Even as Celsius fails, the company’s website states that “users will always have access to their coins and keep them safe forever.”
“We have a lot of work ahead of us as we evaluate various options, this process will take time and there may be delays,” Celsius said in a statement. The statement in question surprised users and depositors. Depositors on the platform questioned why their investments were not protected on social media platforms.
He states that he was directed to withdraw his money from Celsius, partly because of the Terra collapse. On the other hand, there are many reports that Celsius users have invested some of their funds in Terra, and there are concerns that Celsius is taking too high a risk with depositors’ funds. “I was starting to worry about whether the interest rates they were offering were really sustainable,” says Orduna at this point.
It remains unclear whether the depositors at Celsius will get all their funds back. No cryptocurrency lending platform in the industry is unregulated like a bank. Therefore, there is no deposit insurance and no legal framework for who gets their money back in the event of a bankruptcy. One of Celsius’s investors, Quebec’s pension fund and leading venture capital fund WestCap, is likely to get their investments back before many other Celsius depositors do.
Cory Klippsten, CEO of Swan Bitcoin, who has been skeptical of Celsius’s business model for years, said, “This was another bank operation. They don’t reinvent anything here. “They were promoting their service as a better savings account, but in the end it turned out to be just another unsecured lender.”
Terra and its token LUNA offered similar returns on customer deposits. These tokens collapsed after large withdrawals from customers forced Terra operators to liquidate all assets used to support their currency. Terra’s collapse sparked calls for reform in the cryptocurrency market, and there were calls for regulation in the US Congress.