Cryptocurrency market value slumps under $1 trillion

The value of the cryptocurrency market on Monday fell below $1 trillion for the first time since January 2021, according to data site CoinMarketCap, reaching as low as $926 billion.

The global cryptocurrency market peaked at $2.9 trillion in November 2021, but it has faltered so far this year. It has lost $1 trillion in value in the last two months alone as investors ditched riskier assets in the face of high inflation and fears that interest rate raises by central banks will hamper growth.

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The largest cryptocurrency, bitcoin, was down more than 10% on the day, falling to an 18-month low of $23,750. It is down by around 50% so far this year. Smaller coin ether fell over 15% to $1,210.

"As inflation proves to be an even trickier opponent to beat than expected, Bitcoin and Ether are continuing to get a severe bruising in the ring," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"They are prime victims of the flight away from risky assets as investors fret about spiralling consumer prices around the world."

The cryptocurrency lending platform Celsius Network announced that it was pausing all withdrawals and transfers between accounts in order to "honor, over time, withdrawal obligations.”

Celsius, with roughly 1.7 million customers and more than $10 billion in assets, gave no indication in its announcement when it would allow users to access their funds.

Celsius is one of the bigger cryptocurrency lending platforms, with more than $11 billion in customer assets. In exchange for customers’ deposits, the company pays out extremely generous yields, upwards of 19% on some accounts. Celsius takes those funds and lends them out to generate a return.

Lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support, and critics have called them effectively Ponzi schemes.

It is the second notable collapse in the cryptocurrency universe in less than two months. The stablecoin Terra imploded in early May, erasing tens of billions of dollars in a matter of hours. Stablecoins have been seen as relatively safe, because they're supposed to be backed by hard assets, such as a currency or gold.

Just like Terra, Celsius had sold itself as a safe place for cryptocurrency holders to deposit their funds. Even while Celsius was failing, the company's website advertised that users can "access your coins whenever, keep them safe forever.”

"There is a lot of work ahead as we consider various options, this process will take time, and there may be delays,” Celsius said in a statement.

The move surprised investors and depositors. In online chats, they questioned why their investments weren’t protected.

It’s unclear whether Celsius depositors will get all their funds back.

A cryptocurrency lender is not regulated like a bank, so there’s no deposit insurance and no legal framework for who gets their money back first, like in a bankruptcy. It’s possible that Celsius’ investors, which include Quebec’s pension fund, may get their investment back before Celsius' depositors will.