In a move not seen since the housing bubble of 2008 or the Great Depression of the roaring 20s, Celsius, one of crypto’s largest lenders and banks has frozen all withdrawals, transfers, and trades. Reminding traders and investors of the panic that induced the Great Depression when banks could not fulfill their solvency obligations and ultimately failed.
In a similar move, Celsius is no longer able to cover the withdrawals, citing the extreme market conditions of crypto as the primary reason. With over 1.7 million customers worldwide and $3.7 billion in assets, the UK-based company pays interest on cryptocurrency deposits and then loans them out to make a return.
Ideally, the Celcius Network would be able to cover all of the withdrawals should a bank run ever occur—unfortunately, in a similar vein to Terra/Luna, Celsius did not live up to their standards and did not secure the necessary reserves. Which has now led to Celsius Networks CEL token plummeting more than 50%, taking the rest of the crypto community with it.
As of the time of writing, Bitcoin, the determinant for all things crypto, dropped to a 2-year-low of $20,823. While Ethereum hovered right around $1,100 and other major altcoins like Cardano, Solana, and Polygon all suffered more than 20% drops.
Is this the start of the next Great Recession? As more companies run into solvency issues, inflation continues to rise, and projects are failing every other week—perhaps now is the time to prepare for the coming recession.
Why Is This Happening?
Whenever a financial collapse occurs, often we find ourselves asking why did this happen and how? This market event is more common and is expected than you may think. And this has to do with the way markets run in cycles. For example, we have the bear and bull markets that indicate when stocks or crypto are either going up precipitously or down.
This is where we find ourselves today in the crypto market and that is why Celcius, alongside others, have chosen to freeze all movement on their platforms. Because of the bear market, we find ourselves in, meaning more people are selling assets than they are buying them.
Causing lenders like Celcius to scramble to find liquidity for all of their investors who are wanting to cash out.
What Will Celcius Do Next?
Celsius is one of the largest players in the banking and lending industry within the crypto community itself. Celsius alone lends out more than $8 billion to clients and currently has over $12 billion in assets under management since this past May.
This is why to save itself, Celsius will need to alter its strategy to maintain its $12 billion in assets under management or its clients will pull a bank run. Where clients and investors try to withdraw their money from a bank all at once, causing the bank to fail—similar to what happened during the roaring 20s when the Great Depression occurred.
A Celsius Conclusion
Only time can tell how or if Celcius ever recovers from this major hit to their assets under management. In just a little under a year, Celsius has seen its assets drop from a high of $26 billion in client funds to only $12 billion where it is today.
In the short term, investors can expect to see a leaner Celsius with a significant drop in the price of its native token, Cel by more than 50%. If retail investors want to view this as a shopping time for discounted tokens, Cel would certainly be one of them.
But as with all things in investments and crypto, utilize prudence and do not rush to a burning fire. Let the fire cool a bit, see what’s left, and if the structure is still intact—then invest in the remodeling.
Will Celcius come back a bigger and better lender when the bear market cools? I sure hope so and I am sure so many of you reading hope so as well. Here’s to using a little bit of crypto hope during the start of this next Great Recession.
