Celsius Pauses Withdrawals in Huge Setback for Crypto Yield

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Crypto yield company Celsius Network is stopping customers from withdrawing cryptocurrency deposits from its platform. Dreamstime

Crypto yield company Celsius Network is stopping customers from withdrawing cryptocurrency deposits from its platform “to stabilize liquidity and operations while we take steps to preserve and protect assets,” the company said Sunday evening in a memo to clients.

The move is a huge blow to the Hoboken, N.J.-based company, which in mid-May had $11.8 billion in cryptocurrency deposits on its platform. The company takes deposits of cryptocurrency and pays investors interest of up to 18.6% annually. Unlike those in a bank, deposits aren’t federally insured, and U.S. federal and state securities regulators have pursued the company for allegedly selling securities without making the proper registrations and risk disclosures to investors.

In a “Memo to the Celsius Community,” the company wrote that withdrawals are being paused “due to extreme market conditions” to put the company in a better position to honor withdrawals later. The company said that customers would continue to earn yield even as they’re unable to take their crypto off the platform.

“There is a lot of work ahead as we consider various options, this process will take time, and there may be delays,” the company said in the memo.

Celsius has recently faced a number of challenges. In May, the price of its token, called CEL, plummeted, leading the company to liquidate many customers who had used it as collateral, Barron’s reported. The company also lately had lost crypto in hacks of decentralized finance protocols in which it had invested.

Company executives in the past had said it was able to pay such high yields in part because they lended customers’ crypto to institutional investors who were willing to pay even higher interest. However, state securities regulators in enforcement actions against the company said Celsius also engaged in proprietary trading, traded customers’ funds for its own accounts, and used customer funds as collateral for its own borrowing, The company also created a crypto mining subsidiary and in May said it would take it public.

Due to the regulatory scrutiny, the company in April said it would stop paying yield on new deposits from non-accredited U.S. investors.

The company last October said it had raised $400 million from investors including growth equity firm WestCap and Caisse de depot et placement du Quebec, Canada’s second-largest pension fund, valuing the company at $3 billion.

The company’s CEL token on Sunday evening traded at about 18 cents, down by half in the past 24 hours and by 98% from its high of about $8 last June.

Write to Joe Light at joe.light@barrons.com