The Crypto industry is on edge as the price of bitcoin falls below the crucial $20.000 mark. Recent developments include the possibility that Crypto lending firm Celsius could soon go bust and the possible emergence of “staked ether”, an IOU that investors buy with the intention of earning rewards if they hold it. This has spooked investors and sent crypto prices in free fall.
Crypto industry on edge as bitcoin price falls below $20,000
A string of recent crypto meltdowns have caused the prices of many cryptocurrencies to plunge. As a result, calls for regulation have intensified. A bipartisan bill was introduced in the U.S. Senate last week, and the industry has ramped up lobbying efforts. It has already invested $20 million in congressional races this year. But experts like finance professor Cesare Fracassi of the University of Texas at Austin, who leads the university’s Blockchain Initiative, believe this latest drop in Bitcoin’s price is not a cause for concern. Instead of focusing on the price of Bitcoin, they say the focus should be on lending platforms.
Among the most popular cryptocurrencies, Bitcoin has plummeted more than 70% from its high in November last year. Similarly, Ethereum has also dropped. The price of bitcoin has matched the slide in equities. This past week, U.S. stocks fell on fears of an impending recession and rising interest rates. Historically, Bitcoin has followed risk assets, like stocks and bonds.
Crypto lending firm Celsius may soon become insolvent
A recent investigation by the Wall Street Journal reveals that cryptocurrency lending firm Celsius may be facing a liquidity crisis. According to sources cited by the publication, Celsius has been in the red since it launched in July. The company had raised $11 million in a Series B funding round last year from WestCap Group and Caisse de depot et placement du Québec. Now, however, the company has filed for bankruptcy and is unable to meet its contractual obligations. A source at Celsius declined to comment, but a source outlined the company’s recent actions:
While there are still plenty of opportunities in the crypto market, Celsius’s recent troubles may put its future in doubt. Its assets fell 50% between November and May, causing some users to move their funds to other platforms. Users also complained that they had trouble withdrawing funds from Celsius. While this is only one of many factors, the crypto crash is sinking the value of Celsius’s holdings. Celsius was once able to offer high yields to its depositors, but now seems to be unable to honor withdrawal requests on time. It is unclear whether this is a sign of looming insolvency, or of a more fundamental problem.
Staked ether is an IOU that investors buy to earn rewards for holding it
Ethereum is an excellent example of digital asset staking. It is a process through which holders of ETH ‘lock’ their coins into the Ethereum network and receive rewards as ETH tokens. In return, these investors receive an inflation reward each year based on the number of ETH they have staked. As such, staking can help investors earn significant returns.
Some investors may have difficulty gaining access to these funds, but there are also exchanges that allow retail investors to stake ETH2. For instance, Bitwise, a leading cryptocurrency asset manager, has plans to launch a market for locked ETH2 in the US. But ETH2 staking could pose problems, as investors would need to leave the coins on exchanges to earn rewards. It will be interesting to see how staking works out.