Image: Davor Puklavec/PIXSELL
Crashing cryptocurrency prices and liquidity issues have led US cryptocurrency lender Celsius Network to block user withdrawals on Mondays, as Australian lawmakers attempt to make sense of the regulatory gray areas faced by local crypto asset providers and investors.
Unlike “traditional” cryptocurrency exchanges that allow users to buy, sell, and trade digital assets, Celsius offers cryptocurrency loans and pays interest on deposited cryptocurrency to its Earn product. .
Celsius Markets win as a competitor to traditional bank deposits, which have offered minimal interest rates to account holders for the past few years. The One Earn offer claims to provide returns of almost 19% per year.
Celsius claims to have 1.7 million users. In its FAQ section, Celsius says, “don’t worry, whatever amount you need to access, you will be able to”.
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But Celsius said yesterday that “extreme market conditions” forced him to stop “all withdrawals, swaps and transfers between accounts”.
“We are taking this step today to put Celsius in a better position to meet its withdrawal obligations over time.”
The “extreme” the terms in question refer to falling cryptocurrency prices.
Celsius offers interest rates of up to 6.50% on staked Bitcoin in its Earn system, but the underlying market value of Bitcoin has fallen by 25% in the past five days alone.
The value of CEL, the in-house crypto asset that powers much of the Celsius system, was trading at around US$0.27 on Tuesday morning, representing a 50% drop in value over the past week.
Celsius traders hoping to withdraw their holdings or exchange them for fiat currency can no longer do so.
“We are taking this necessary action for the benefit of our entire community to stabilize liquidity and operations while taking steps to preserve and protect assets,” the company said in a statement.
Celsius lockdown highlights loopholes in Australian regulations
The Celsius crisis reflects the growing sense of urgency among Australian industry players and lawmakers, who are trying to remove regulatory safeguards in the emerging digital economy.
Unlike traditional lenders, who must meet liquidity requirements under federal law, cryptocurrency lending services are not required to meet the same level of scrutiny.
As crypto asset deposits are not treated the same as bank deposits, Australian investors can also be left dry if an exchange fails.
While many investors have been flying high on the expansion of cryptocurrency stocks in the months leading up to the start of 2022, the high-profile collapse of local outfits like MyCryptoWallet alerted regulators.
In October last year, the Senate Select Committee on Australia as a Technology and Financial Center released a report with 12 key recommendations for crypto regulation, including a formal market license regime for digital asset exchanges.
Last month, the Treasury closed submissions to its discussion paper on the shape of this proposed licensing regime, which covers Secondary Crypto Asset Service Providers (CASSPrs).
The document indicates that any regulatory framework should take into account the “operational risks” facing the CASSPRs, “including business continuity, illiquidity and insufficient capital” – the specific problems that seem to plague Celsius.
A further Treasury consultation is expected later in 2022. For now, investors and regulators will keep their eyes on the falling market and industry players will feel the brunt of falling prices.