S&P 500 Falls Into Bear Market
The offer seemed too good to pass up: Deposit your cryptocurrency, and receive a yield as high as 18 percent.
That was the promise of Celsius Network, an experimental cryptocurrency bank with more than one million customers that emerged as a leader in the murky world of decentralized finance, or DeFi. Last year, DeFi exploded into a $100 billion industry, attracting both venture capital firms and regular investors with the prospect of lightning-fast gains. Celsius was managing more than $20 billion in assets.
But on Sunday night, as cryptocurrency prices slid, Celsius became the latest crypto venture to spiral into a crisis, announcing that it was freezing withdrawals “due to extreme market conditions.”
The announcement sent the market into a meltdown, as Celsius customers wondered whether they would be able to get their deposits back. Bitcoin is down 15 percent over the last 24 hours, falling to about $23,000, its lowest value since December 2020, according to CoinMarketCap, an industry price tracker. Ether, the second-most valuable cryptocurrency, is down about 16 percent.
The crash extends a dire period for cryptocurrencies, illustrating in graphic terms the risks of these experimental investments. Just a month ago, the implosion of a popular coin helped trigger a crypto meltdown that erased $300 billion in value across the market. The back-to-back crashes have fueled criticism that many of the complex crypto banking and lending projects known as DeFi are high-risk schemes teetering on the brink of ruin.
“DeFi is a house of cards,” said Cory Klippsten, the chief executive of Swan Bitcoin, a financial services firm focused on Bitcoin. “It’s speculation on speculation, and there’s no real-world use case for any of this stuff.”
DeFi exploded into the mainstream in 2021, as the prices of Bitcoin and Ether surged and crypto became a cultural phenomenon. Many customers were drawn to the potential for astronomical gains from complex crypto lending projects.
Celsius has emerged as one of the best-funded and most popular investment options for DeFi speculators. Founded in 2017 by the businessmen Alex Mashinsky and Daniel Leon, Celsius accepts deposits of Bitcoin, Ether and other cryptocurrencies, and then invests them, generating returns that are paid back to the depositors.
Celsius says it has attracted 1.7 million customers. Last year, the company held more than $20 billion in assets, though that figure has sunk over recent months as the market has declined. In the fall, Celsius announced it had raised $750 million from investors, giving it a valuation of more than $3 billion.
But the company also encountered its share of problems. For months, critics have wondered how it could sustain such dramatic yields without putting its depositors’ funds in jeopardy through risky investments. The company has drawn scrutiny from several state regulators, and its chief financial officer was arrested in Israel as part of a fraud investigation…
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