Bitcoin's Crypto Crash Prompted This Firm to Pause Withdrawals. Here's Why The price of bitcoin dropped to its lowest value since December 2020.
By Sam Silverman Edited by Jessica Thomas
Opinions expressed by Entrepreneur contributors are their own.
The price of Bitcoin dropped $24,000, or 17 percent, on Monday morning, marking the crypto currency's lowest drop since December 2020, according to the New York Times.
In the wake of uncertain times in the crypto market, more than $200 billion was removed from the crypto market just this past weekend, according to CNBC. This "great withdrawal" has marked another grim milestone in crypto's history as market capitalization dropped below $1 trillion for the first time since February 2021, according to Coin Market Cap.
As stockholders rush to take back their cash, crypto firm Celsius added to the unrest after they paused withdrawals and transfers. "We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets," Celsius said in a blog post.
Why Is Bitcoin Crashing?
The drop in the crypto market follows the massive rise in inflation that has plagued Americans across the country. The U.S Federal Reserve is anticipating raising interest rates to help aid the growing costs, which has led many to drop their stocks as a precaution, per CNBC. But while a drop in Nasdaq exchanges is expected in this current climate, people are beginning to see that this drop translates into the cryptocurrency market as well.
"Since Nov 2021, sentiment has changed drastically given the Fed rate hikes and inflation management. We're also potentially looking at a recession given the FED may need to finally tackle the demand side to manage inflation," Vijay Ayyar, a VP at crypto exchange, Luno, told CNBC.
Noting Bitcoin saw a big drop in bear markets prior, he added it will be some time before we see it thrive again.
"All this points to the market not completely having bottomed and unless the Fed is able to take a breather, we're probably not going to see bullishness return," he said. "We could see much lower bitcoin prices over the next month or two."
In addition to Bitcoin, the digital coin Ethereum also dropped nearly 32 percent in a matter of days, and Celsius' own coin, CEL, also dropped more than 50 percent in 24 hours, according to CoinGecko.
What is Celsius and Why Did it Pause Withdrawals?
In the wake of Bitcoin's decline, crypto lending firm Celsius paused all withdrawals and transfers "due to extreme market conditions," they said in a statement on Monday.
The crypto lending company, which advertises an 18 percent yield to its alleged 1.7 million customers, operates when crypto users deposit their crypto funds with the firm, which then loans the capital to investors and institutions. The users then get a yield from the revenue Celsius earns off its transactions. In other words, Celsius is the crypto equivalent of a bank, just with higher than average interest rates and more relaxed requirements than a traditional brick and mortar. Previously, Celsius' firm was valued at around $26 billion in October 2021, but as of May 2022, it saw a drop to $11.8 billion, per CNBC.
"The Celsius situation is definitely adding fuel to the fire," Ayyar added. "Broadly the markets were already under pressure from inflation concerns and the interest rate hikes, but with crypto, such contagion events could cause outsized declines, given the market is tightly interlinked these days with a variety of inter-connected protocols and businesses."
