Why Did Celcius Crypto Crash? The Fall Of Celcius Network Explained
The value of Celsius cryptocurrency crashed in June'22 as it struggled with major financial issues. Read on to know why it failed
2022 has been a rough year for the crypto markets as major cryptocurrency players like Terra Luna, Voyager, Celsius and other crypto projects crashed or failed. The overall cryptocurrency market has also seen a major fall from its peak in 2020, with many financial experts claiming that a ‘crypto winter’ is going on. Celsius Network was one of the largest crypto companies and when it filed for bankruptcy on July 13, 2022, the value of the Celsius crypto also crashed dramatically. So which events led to the downfall of the Celsius Network and its native cryptocurrency? Let’s try and understand.
What is Celsius Network?
Celsius is a decentralised finance company that works somewhat similar to how a typical bank functions. The only difference is that Celsius Network deals in cryptocurrencies rather than fiat money. All Celsius users can deposit their cryptocurrencies on the network and earn interest in return. Moreover, users can also choose to take out cryptocurrency loans. At its peak, Celsius was considered to be one of the most successful and large DeFi projects. The Celsius token (CEL) was the native token of the Celsius network.
Why Did Celsius Network Declare Bankruptcy
As mentioned above, the cryptocurrency market in 2022 has been extremely volatile and unstable due to major financial issues like inflation, a weak stock market, and increased interest rates by the Federal Reserve System in the US. As a result, people started to pull out their crypto investments from the Celsius network due to fear of the value of their cryptocurrency crashing and started converting them into cash and other more stable assets. As more and more people started to pull out their investments from the Celsius network, other investors were worried about Celsius’s ability to pay back all of the deposited crypto funds. This in turn created a panic where more and more people started pulling out their deposited crypto funds from Celsius.
On June 12, Celsius Network froze all crypto withdrawals, swaps and transfers and claimed that they had to take this step due to ‘extreme market conditions’. This created fear in the minds of the platform’s users that Celsius had become insolvent and were no longer capable of paying back the users’ investments. An official memo released by Celsius read:
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, swap, and transfers between accounts. We are taking this necessary action for the benefit of our entire community to stabilize liquidity and operations while we take steps to preserve and protect assets.”- Memo from Celsius
Why Did Celsius Crypto Crash?
Just a few hours after Celsius announced that they would be freezing all withdrawals, the value of the Celsius cryptocurrency plummeted by 70%. The price of the Celsius token continued to fall over the next few days. Along with the crash in Celsius price, the crypto market had been experiencing a massive sell-off due to volatility and falling prices of various major cryptocurrencies. On July 3rd, 2022, Celsius announced that they would be laying off 23% of their total staff as the company faced rising liquidity issues. On July 13, 2022, the company finally filed for bankruptcy.
“Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps and transfers on its platform to stabilize its business and protect its customers. Without a pause, the acceleration of withdrawals would have allowed certain customers – those who were first to act – to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”-Statement from Celsius
A further court ruling revealed that the company had a $1.2 billion hole in their balance sheet, as Celsius had total liabilities of $5.5 billion and assets worth $4.3 billion.