- bbc world of news
A month ago he established a “corralito” for his clients to protect themselves from extreme market conditions. He didn’t make it and now he’s filed for bankruptcy.
The Celsius platform, one of the largest lenders of digital currencies and a key player in the world of decentralized finance, has accepted the Chapter 11 of the United States Bankruptcy Lawwhich allows companies with financial problems to reorganize under the protection of the law.
Celsius will maintain control over its operations with this mechanism, although under the supervision of a court.
“This is the best decision for our community and our company,” Alex Mashinsky, CEO and co-founder of the company, said in a statement.
Celsius has applied to the court be able to continue paying their employees but for the moment, does not intend to allow its clients to withdraw funds. According to the statement, it has available cash of US$167 million, “which will offer ample liquidity to support certain operations during the restructuring process.”
From now on, Celsius is going to work with new directors. They are David Barse and Alan Carr, both with experience in investment firms.
The platform has been dragged down by the crisis that the cryptocurrency market has gone through.
“The crypto market has started the year having turbulence amid the increases in interest rates by the Federal Reserve, high inflation and the fall of the markets”, explains Alice Liu, senior associate at the firm WisdomTree, referring to the collapse of the sector.
Last month it decided to freeze the accounts of its 1.7 million users, a decision that was described as a “corralito” by cryptocurrency experts, referring to the restriction of cash withdrawals from banks in Argentina in 2000.
Since then, Celsius prevents its customers withdraw funds, transfer them or even turn into money earned with cryptocurrencies.
This caused the price of bitcoin and ethereum, the two largest virtual currencies by market value, to plummet, continuing a worrying downward trend.
In addition, Binance, the world’s largest cryptocurrency exchange, was also affected and had to “pauser” For a few hours the withdrawals of bitcoin.
Bitcoin accumulates falls above 50% in 2022, while ethereum has lost 69% of its value.
And this, experts explain, has dragged the other currencies in a domino effect and has put several platforms in trouble.
Celsius, which has offices in the United States, the United Kingdom and Lithuania, said at the time that the freeze was “for the benefit” of its entire “community.” to stabilize liquidity and operations as we take steps to preserve and protect assets.”
In a matter of a year, the CEL has gone from being worth US$7 to around US$0.20.
the system Celsius, as a lending platform, rewards its customers with high interest rates for holding cryptocurrencies within its network.
That is, someone with a bitcoin could “store” the currency on this platform and in exchange receive rewards for it.
When someone decides to put the coin in betthe English name of this practice, you undertake not to carry out any operation with it.
In general, the more days you leave a crYopt in betjuicier is the cousin
The reason a cryptocurrency earns rewards while in storage is because the blockchain puts it to work.
No legal protection
It is a system similar to savings accounts in traditional banks However, it does not have the same degree of legal protection.
According to its website, Celsius offers more than 7% interest on stablecoins like USDC and Tether; 7.25% for polygon, 6% for ethereum and 6.25% for thebitcoin.
They are percentages of earnings that no bank in the world can to offer nowadaysgiven market conditions and low interest rates.
“Too Good to be True”
What happened has led Gary Gensler, president of the SEC, the main financial regulator in the United States, to warn about promised returns of crypto lending platforms and products that seem “too good to be true”.
“How can someone offer (such a high percentage return) in today’s market without giving away a lot of information?” he said in a public forum.
Already in March, and not for the first time, the three European financial supervisory authorities warned consumers about the real risks of crypto assets, noting that are not suitable for most retail consumers as an investment or as a means of payment or exchange.
Nevertheless, “The cryptocurrency fever seems to be far from abating. It is estimated that around 10% of the adult population in Europe and 16% in the United States have some kind of investment in cryptocurrencies,” says Sam Theodore, senior consultant at Scope Group in a market commentary.
“Unfortunately, there are no estimates on how many of these investors understand how it works and the risks to which they are exposed“, he added.
For Paul Donovan, chief economist at UBS, the cryptocurrency market crash it is not important for the real economy.
The crypto market is imploding (again). Does this matter? No. Crypto is a bet, not an investment. Economies can benefit if the labor and resources of cryptocurrencies are transferred to economically useful sectors,” the economist said.
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