What happened
The world of cryptocurrency is having something of a meltdown today as most valuations are dropping double digits. On the Celsius Network, which is related to the Celsius (CEL) token, halting transfers has been a catalyst but the fallout hasn't been contained to any single cryptocurrency; everything is down big.
Bitcoin (BTC -4.67%) has dropped 14.8% in the last 24 hours as of 10:30 a.m. ET, Ethereum (ETH -4.82%) has dropped 16.8%, and Dogecoin (DOGE -6.96%) is down 15.5%.
So what
The biggest news in the last day has been Celsius Network freezing withdrawals, which spooked the market as a whole. The Celsius Network is a cryptocurrency lending company, which connects borrowers and lenders in a decentralized network. In a blog post, the company said in part:
Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.
Freezing transfers means that people can't borrow cryptocurrency, but it also means that borrowers can't repay their loans as crypto prices crash. The move has caused chaos across the market in part because traders don't know how to manage risk when they can't pay off collateralized loans and may get a margin call at any time.
The Celsius Network was also supposed to be a decentralized platform that wasn't able to control users' cryptocurrency. On their website it says "Access your coins whenever, keep them safe forever."
Now what
Some of the unintended risks of cryptocurrency are coming to light and the market doesn't know where to turn. Even the biggest tokens like Bitcoin and Ethereum are dropping with no end in sight, and news items like the Celsius Network freezing transactions only exacerbates fear in the market.
It's often been said that most cryptocurrencies and decentralized finance or NFT projects aren't going to survive long-term, but when they fail it's caused a spectacular reaction by the market. Luna's recent collapse was an example of that, and if Celsius fails it could be another ominous sign. We have even leading exchange Finance pausing Bitcoin withdrawals early on Monday because of a "stuck transaction."
All of this chaos has understandably caused fear to take over the market. If traders aren't able to make the transactions they expect, it can lead to a massive amount of panic selling, and we may already be seeing that today.
Long-term, there will likely be cryptocurrency projects that change how the economy works and add tremendous value for investors, but today we're seeing the downside risk as we shake out those in it for the long haul and those that weren't built to last.
