It’s no surprise that the cryptocurrency market is facing some bearish headwinds at the moment with bitcoin breaking the $30,000 support level just last week. I’d like to think that most investors who dabble in cryptocurrencies are aware of the risks involved such as massive price volatility etc. but I daresay that most just aren’t quite ready to deal with being “rug-pulled” by the exchange themselves.
This is exactly what happened just yesterday with the crypto exchange, Celsius. On the 13th of June 2022, they announced that,
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts.”
A Memo to the Celsius Community – Celsius
Though some facts may be certain, by and large, I will be exploring what I think are some widespread repercussions that such an act would have on the crypto community as a whole.
What is Celsius?
Mission – To put unparalleled economic freedom in the hands of the people.
In other words, Celsius aimed to be the most reputable P2P Crypto lending and borrowing platform. In doing so, one of their goals was to provide somewhat of a centralized wallet for the various exchanges. In doing so, members would be able to lend/borrow coins are much lower rates as compared to traditional financial institutions. (FIs)
As such, Celsius CEO Alex Mashnisky can often be seen in public being vocal about issues such as the benefits of blockchain technology over that of traditional FIs.
Apart from increased rewards, members would also have access to the following perks,
- Borrow cash against cryptocurrency collaterals
- Lend funds at higher interest rates (as compared to traditional FIs)
- Borrow funds at lower interest rates (as compared to traditional FIs)
- Top 100 holders of CEL coin (their native currency), get invited to private events, meet & greets etc.
What happened?
Celsius is pausing all withdrawals, swap, and transfers between accounts.
And this was how people reacted:
Needless to say, Celsius members are now up in arms over this extended “pausing” of withdrawals. This most certainly comes at much of a surprise given the multiple reassurances from within the company.
In recent weeks, Celsius Network’s CEO, Alex Mashinsky, has attempted to reassure clients by stating that they can withdraw their assets at any time and questioning skeptics. According to the company customers that move assets into Celsius accounts and work in assistance jobs for up to 180 days will receive rewards.
Cryptopolitan
Assurances also came from other sources such as fund managers who most certainly held their due diligence “processes” in high esteem, until now…or until periods of market volatility.
What now? – Possible Scenarios
In my opinion, it is almost impossible for Celsius to come out on top of things even if they lifted the pause. Let’s explore some possible scenarios.
Scenario 1 – Crypto Market Rebounds
In an ideal scenario, markets would rebound from here and members in the Celsius network would cheer on the exchange for “protecting them” in times of volatility. Such a cheer would be short-lived as members would remember that if Celsius halted their withdrawals once, they can do it again.
[Result] Members would leave.
Scenario 2 – Crypto Market continues to sell-off
Based on the status quo, members would still be unable to cut their losses and would be stuck holding on to even larger losses. Should trading resume, members may not liquidate their positions but instead may opt to transfer their holdings over to other exchanges.
[Result] Still a loss for Celsius.
In other words, Celsius really shot themselves in the foot this time as no matter what they do from here, the confidence that customers had in their company has indeed been lost forever.
This then begs the question that Celsius most certainly knew this in which case the only plausible explanation that I can derive is that they expanded all other options in which case this is likely to be their last act of desperation to stave off “insolvency”.
How will this impact the larger crypto community?
Which came first?
Did the halt in withdrawals cause the market to crash further or did the market sell-off cause Celsius to do what they did?
We can go on to speculate about this all day but the fact remains that Celsius did indeed conduct some large withdrawals in the days leading up to this move.
This alone suggests to me that such events may be more than mere coincidence given how the timeline of such moves seems almost too “perfect”.
Taking into consideration the spillover effect from the actions of Celsius, I personally think that we will see many investors move away from the smaller exchanges to larger ones which they falsely seem to think is “safer”. I dare not speculate on the outcome should such safer exchanges experience similar events to that of Celsius.
Covering our Corners
With this article, what I really want to emphasize is, how confident you are that your brokerage would allow you to withdraw your assets if they fell drastically over a short period of time? Furthermore, if they didn’t allow you to do so, would you see it as the brokerage “protecting” you from market volatility or would that indeed be a blatant breach of your rights as a consumer?
Also, as our crypto investor-trainers like to say, “not your keys, not your coins”. If you dabble in crypto and have your entire portfolio stored in an exchange, you’ll constantly be exposed to such situations especially during bear markets. The solution? Get a hardware wallet and store your coins independently.
These are trying times where it is almost impossible to find a “safe” asset class. While the safest asset class may be difficult to identify, I do believe that it is clear that investors should most certainly take more caution when it comes to any investments involving cryptocurrencies at present.