Celsius Is Latest Lender to Pull Its Earn Product for U.S. Investors

It's increasingly difficult for U.S. investors to access high interest rates on crypto deposits.

Celsius announced this week that its crypto-earn product will soon be off limits to most U.S. investors. As of April 15, Celsius will not accept new deposits to its Earn accounts from non-accredited U.S. investors. Read on to find out more about the move and what it means for similar offerings in the U.S.

What Celsius users in the U.S. need to know

Celsius is one of several crypto finance platforms that pays high rates of interest on crypto deposits. At time of writing, Celsius offered around 7% on stablecoins and between 0.5% and 14% on other cryptos. The main way it generates these rates is by lending assets to institutions and others, and passing on the returns to investors.

However, these products have come under increasing regulatory scrutiny in the U.S. and Celsius will no longer be able to pay rewards on new deposits from many Americans. Here are the changes to Celsius products that will come into effect at the end of this week:

• U.S. customers will continue to earn rewards on existing deposits but won't be able to add new funds.
• Celsius will launch a new Custody solution for U.S. customers. Moving forward, new deposits will be held in Custody accounts and will not be eligible for rewards, unless you're an accredited investor.
• To qualify as an accredited investor, users need to meet set income or net worth criteria or hold certain licenses. For example, a person with a net worth of over $1 million might qualify.
• Customers outside the U.S. will not be affected.

Bowing to regulatory pressure

Celsius is under investigation in several U.S. states. Authorities in Texas, New Jersey, and Alabama have questioned whether its products violate U.S. securities laws. In a press release, Celsius said the move was the result of "ongoing discussions with United States regulators." Co-founder and CEO Alex Mashinsky described the situation as a "paradigm shift" for the industry on twitter.

To understand more about that shift, look no further than one of its competitors, BlockFi. BlockFi recently reached a $100 million settlement with the Securities and Exchange Commission (SEC) and withdrew its lending/earning product from the American market. The SEC said BlockFi's interest-paying product should be categorized as a security.

SEC Chair Gary Gensler has stressed for some time that he believes a number of crypto products are actually securities. The crux of what is -- or is not -- a security is at the heart of many aspects of cryptocurrency regulation. Securities need to be registered with the SEC and issuers have to follow strict rules about how they can be traded and sold.

Back in August, those who hoped Gensler's initial speech on crypto and crypto exchanges would be pro-crypto were disappointed. Gensler said he believes many crypto platforms are offering securities and should be registered with the SEC. He also told the audience he'd urged his staff to protect investors in the case of unregistered securities. We're now seeing some of the results of those actions.

It is extremely likely that other crypto-earn products will be forced to follow BlockFi and Celsius and withdraw reward-paying products from the U.S. market. What remains to be seen is whether either of these market leaders can develop different interest-generating products that gain SEC approval. Or whether evolving cryptocurrency regulation will offer an alternative solution.