How crypto lender Celsius stumbled on risky bank-like investments

Celsius Network logo and representations of cryptocurrencies are seen in this illustration taken, June 13, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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June 15 (Reuters) – Celsius Network, the retail crypto lending platform whose liquidity problems have sent cryptocurrencies plunging, stumbled on complex investments in the wholesale digital asset market in what analysts say was akin to a traditional bank run.

Citing extreme market conditions, New Jersey-based Celsius this week froze withdrawals and transfers between accounts “to stabilize liquidity.” In a video on Friday, the company’s finance chief said Celsius, along with the industry, had seen redemptions rise following the collapse of cryptocurrency TerraUSD in May. read more

Cryptocurrencies have since lost over $400 billion in value.

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Similar to a bank, Celsius gathers crypto deposits from retail customers and invests them in the equivalent of the wholesale crypto market, including “decentralized finance” or DeFi sites that use blockchain technology to offer services from loans to insurance outside the traditional financial sector. read more

Unlike banks, Celsius promises retail customers huge returns, sometimes as much as 18.6% annually. The lure of big profits has led individual investors to pour assets into Celsius and platforms like it. Its CEO Alex Mashinsky said in October Celsius had $25 billion in assets, although that had fallen to around $11.8 billion as of last month, its website showed.

Celsius appears to have stumbled on its wholesale crypto investments, according to public blockchain information and analysts who track such data. As those investments soured, the company was unable to meet redemptions from customers fleeing amid the broader crypto market slump, analysts said.

“This is the closest we’ve seen to a bank run” in the cryptocurrency sector, said Noelle Acheson, head of market insights at…

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