Celsius struggles to survive as cryptocurrencies crash and inflation rises, leaving the crypto space in extreme peril. With the market entering its deepest and darkest phase, giant US DeFi lending platform Celsius has been struggling to stay grounded after announcing the pause of its withdrawals, swaps, and transfers between accounts, blocking all its customers out of their money.
Bitcoin and other cryptocurrencies took a beating on the news, as the world’s largest digital asset dropped 15% down to $20,150, almost close to the peak of 2018. Ethereum also fell 17% reaching $1,030, while Celsius’s Cel token crashed by more than 38%.
On top of that, cryptocurrencies have also become mired in market panic over rising inflation and higher interest rates, which has dampened the appetite for riskier assets, making the situation even worse.
In fact, the Federal Reserve will most likely raise rates by three-quarters of a point tonight, as per the Fed Funds Futures listed on CME. This marks an unexpected big shift in sentiment from Monday when only 40% of investors believed that the Fed would raise rates that high. A week ago, expectations for an increase were only 3%. Does this indicate that we are heading towards a recession? Only time can tell.
Now, with $8 billion worth of crypto tied up in Celsius accounts and loans, the platform remains a primary threat to the space; if the latter starts to liquidate assets, this will definitely cause turmoil in the market. In fact, some are already speculating that the most recent declines have been due to the company selling.
Furthermore, regulators will take every opportunity they get to control the industry, and this would be the perfect excuse to go there, which brings us to the long-term risk: strict and prohibitive regulations.
However, this situation raises a question that is probably on the minds of all cryptocurrency enthusiasts and investors: Unlike traditional financial institutions like banks, blockchain technology allows us to have full control of our assets. But isn’t this the case for Celsius, as investors no longer have access to their assets?
Blockchain transparency and control over assets
As mentioned above, the group, which offers users higher-than-average interest rates on their deposits, is essentially the crypto equivalent of a bank, but without the stringent insurance requirements, traditional lenders face. However, since it works under blockchain technology, depositors have much more control over their personal information and financial data than users of fiat currencies.
This shows that at the end of the day, even if we are fully invested in this technology and hand over our assets to an exchange, they will not be in control of anything they own, as confirmed by Celsius’s decision to pause all transactions.
Future of the market and other projects
Celsius explains that its decision is aimed at protecting the community and the activity itself will serve the users, but there is nothing in this action that will really serve them. It is nothing but a signal to announce that the company is in a liquidity crisis and cannot meet its obligations.
However, this is still a great tragedy for the vast number of users who have put all their trust in this platform, as they have lost huge amounts of money that they may not even get back. But the Celsius situation is only a small part of the bigger picture; the company’s collapse occurred not only because of its business model but also because it had invested its assets in projects which had similar business models to Celsius. These projects operated on a mutual feed of risk intended to create an artificial demand for their coins, making them appear more successful than they really were. That is why other projects are expected to collapse as well, which will clear the market in the long run. But this stability will not be achieved without regulatory intervention and oversight from the players who manage billions of dollars in assets. Until then, cryptocurrencies will continue to suffer and more projects will eventually drop.
Similarly, it doesn’t look good for MicroStrategy, a large Bitcoin investor, which borrowed $205 million from crypto bank Silvergate Capital Corp in March, with the three-year loan mostly secured by around 19,466 bitcoins.
The CEO of the tech company began buying Bitcoin in August 2020, bringing the company’s total to 129,218 Bitcoins in the following months.
Since MicroStrategy owns approximately 129,218 bitcoins, a drop in the value of Bitcoin is usually related to a drop in its share price.
The lower the price, the more risk it represents for the company, and if the value of Bitcoin continues to decline, MicroStrategy may have to offer more of its Bitcoin reserve to cover the loan with Silvergate Bank that has been used. to buy more Bitcoin. In other words, if both companies, either Celsius or MicroStrategy, officially reach liquidation status, intense selling pressure will be created, causing the market to crash even more.
However, the good news is that even if we get to that point, the company has enough Bitcoins to secure the loan and will still have some in storage, giving investors a sense of relief.
Better yet, all it takes is a rise in the price of Bitcoin to clear this up, hopefully resetting the entire space and Celsius issue. Nonetheless, tonight’s decision by the Federal Reserve regarding the interest rate increase will be the deciding factor as it will further affect the price of Bitcoin, making it a ‘fighting fire with fire’ kind of situation.