The value of Bitcoin fell on Monday after Celzius, a US cryptocurrency lender, froze withdrawals and transfers citing "difficult conditions," in the latest sign of the financial market turmoil that hit the cryptocurrency world.
Celezios' action caused a decline in cryptocurrencies, whose value fell below a trillion dollars for the first time since January last year, leading to a 14 percent decline in Bitcoin, the largest cryptocurrency.
After the Celsius announcement, Bitcoin hit an 18-month low of around $23,924. Ether - the second currency - fell 18 percent to $1,176, its lowest level since January 2021.
The cryptocurrency market has fallen in the last five weeks, with rising interest rates and inflation hurting riskier assets in money markets. The collapse of Terra and Luna in May also contributed to the volatility of the cryptocurrency market.
Joseph Edward, head of financial strategy at fund management firm Solrais, says: "We are still at an uncomfortable stage, and there is a risk of contagion surrounding cryptocurrencies on a large scale."
Celsius offers interest-bearing products to customers who deposit cryptocurrencies into its platform, and then lend those coins to earn a return.
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The company said in a blog post that it had frozen withdrawals and transfers between accounts "to stabilize liquidity and operations while we take steps to preserve and protect assets."
The New Jersey-based company said: "We are taking this action today to put Celsius in a better position to meet its withdrawal commitments over time."
Gray area
Growing interest in cryptocurrency lending has led to concerns from regulators, especially in the United States, who are concerned about investor protection and systemic risk from unregulated lending products.
Celsius and cryptocurrency companies that offer bank-like services are in a "grey area" when it comes to sharia, according to Matthew Nieman, who works for a law firm, "they are not the subject of any clear legislation that requires clarification of their assets."
Celsius raised $750 million in November from investors including Caes du Dibeau and Plasmo de Quebec, Canada's second-largest pension fund.
Celsius was valued at about $3.25 billion at the time.
As of May 17, Celsius's assets stood at $11.8 billion, according to its website, down more than half from last October, and it handled loans equivalent to $8.2 billion.
In October, Alex Machinsky, CEO of Celizios, said the platform had more than $25 billion in assets.
The company's website, which urges consumers to "earn big and borrow at a low cost," said it offered interest of up to 18.6 percent.
Celesios' competitor Nexo offered Monday to buy Celesios' existing assets, but the latter did not respond to Nexo's offer.