Crypto’s latest meltdown leaves gamblers bruised and stunned

LONDON/MUMBAI/ANKARA, June 21 (Reuters) – For Jeremy Fong, US cryptocurrency lender Celsius was an ideal place to store his digital currency holdings – and earn some pocket money along the way with double-digit interest rates.

“I was probably making $100 a week,” Fong, a 29-year-old civil aviation worker who lives in the central English city of Derby, told sites like Celsius. “That covered my errands.”

Now, however, Fong’s crypto – about a quarter of his portfolio – is stuck at Celsius.

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The New Jersey-based cryptocurrency lender last week froze withdrawals for its 1.7 million customers, citing “extreme” market conditions, triggering a sell-off that wiped out hundreds of billions of dollars of cryptocurrencies’ paper value worldwide. read more

Fong’s long-term crypto holdings are now down about 30%. “Definitely in a very uncomfortable position,” he told Reuters. “My first instinct is to just pull everything back,” he told Celsius.

Celsius’s rise followed the collapse of two other major tokens last month that shook up an already depressed crypto sector as soaring inflation and rising interest rates caused a flight from stocks and other higher-risk assets. read more

Bitcoin fell below $20,000 for the first time since December 2020 on June 18. It is down about 60% this year. The total crypto market has fallen to about $900 billion, from a record $3 trillion in November. read more

The fall has left individual investors around the world bruised and stunned. Many are angry with Celsius. Others swear never to invest in crypto again. Some, like Fong, want stronger oversight of the freewheeling industry.

Susannah Streeter, an analyst at Hargreaves Lansdown, likened the turmoil to the dotcom stock crash of the early 2000s — to technology and cheap capital making it easy for individual investors to access crypto.

“We have this clash of smartphone technology, trading apps, cheap money and a highly speculative asset,” she said. “That’s why you’ve seen a meteoric rise and fall.”

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‘PACING IN THE DARK AT 2 AM’

Crypto lenders, such as Celsius, offer high interest rates to investors – mostly individuals – who deposit their coins on these sites. These lenders, mostly unregulated, then invest deposits in the wholesale crypto market. read more

Celsius’s problems appear to be related to its wholesale crypto investments. As these investments turned sour, the company was unable to meet investor client payoffs amid the broader crypto market slump. read more

The redemption freeze at Celsius was akin to closing a small bank. But a traditional bank, overseen by regulators, would have some form of protection for depositors.

One of those affected by the Celsius freeze was 38-year-old Alisha Gee in Pennsylvania.

Gee has invested “every last bit” of her salary in crypto since 2018, which has grown to a five-figure figure. She has $30,000 in deposits with Celsius — some of her total crypto holdings — and earns her $40-$100 a week interest, which she hoped would help her pay off her mortgage.

Just over a week ago, Gee got an email from Celsius saying she couldn’t withdraw money. “I was just pacing at 2 a.m. in the dark, just back and forth,” she said.

“I believed in the company,” Gee said. “It doesn’t feel right to lose $30,000, especially not what I could have used on my mortgage.”

Gee said she would continue to use Celsius and said she was “loyal” to the company and had never experienced any problems before.

Celsius CEO Alex Mashinsky tweeted on June 15 that the company was “working non-stop,” but has provided few details about how and when shooting would resume. Celsius said Monday it was aiming to “stabilize our liquidity and operations”.

GUARDRAILS

For some, the enthusiasm for crypto is undiminished.

“I’ve seen several bear market cycles by now, so I’m avoiding any knee-jerk reaction,” said Sumnesh Salodkar, 23, in Mumbai, whose crypto holdings are low but still in positive territory.

For others, warnings from regulators around the world about the risks of dabbling in crypto have become reality.

Halil Ibrahim Gocer, a 21-year-old in the Turkish capital of Ankara, said his father’s crypto investments have fallen from $5,000 to $600 since he introduced him to crypto.

“Knowledge can only take you so far in crypto,” Gocer said. “Happiness is what counts.”

Another investor, a 32-year-old IT worker in Mumbai, said he has invested three-quarters of his savings — several hundred dollars — in crypto. The value has plummeted by about 70%-80%.

“This will be my last investment in cryptocurrencies,” he said, asking for anonymity.

Regulators in countries around the world have been figuring out how to build crypto guardrails that can protect investors and mitigate risks to broader financial stability.

The crypto market turmoil sparked by Celsius highlights the “urgent need” for crypto regulations, a US Treasury Department official said last week. read more

Fong, the British investor who has lost access to his crypto at Celsius, wants things to change.

“A little regulation would be basically good, but then I think it’s a balance,” he said. “If you don’t want too much regulation, this is what you get,” he said.

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Reporting by Tom Wilson and Elizabeth Howcroft in London, Nupur Anand in Mumbai and Ece Toksabay in Ankara. Editing by Jane Merriman

Our standards: The Thomson Reuters Trust Principles.

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