If you think the stock market is terrible, cryptocurrencies got hit much harder. Unfortunately, this may just be the beginning. Because if people have a lot of fear that their exchanges will go out of the business, that they will stop allowing people to withdraw money and stop allowing people to pull their cryptocurrencies off of the exchanges, then nobody is going to invest in crypto. Everyone just will sell it because of high panic!
It's basically like a run on the banks like 2008! In 2008, there was a fear that the bank would go out of business, and you wouldn't be pulling out your money from the bank. I mean, the entire financial system was collapsing.
Read More - What caused Bank Run in 2008?
And people literally made a run on the banks. There were ATMs running out of currencies; there were banks that didn't have enough cash on hand for the withdrawals that were coming in. It was a nightmare!
The fed was trying to step in and say - Look! It's FDIC insured; you are fine! Stop pulling out money!
People were quite right for being panicked because some banks did go out of business, and some banks were bankrupt.
Now, why am I telling this story?
Because this is precisely what we are seeing now in the cryptocurrency market. We are witnessing that exchanges start to stop allowing people to withdraw funds, preventing people from moving their crypto off the exchange. This is simply causing a run on the crypto exchanges.
Celsius Crisis
Celsius, a cryptocurrency exchange, announced that they are pausing all withdrawals, Swaps, and transfers between accounts.
It means if your crypto is in Celsius, they are stuck now. In the blog post, they wrote -
"We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets." - Source
But why is this happening?
Just a few days ago, someone on Twitter tweeted - Only 27% of Celsius' ETH is liquid, the rest is either stETH or staked in ETH2, so inaccessible for at least 1 year. If withdrawals continue at the current pace.
50k ETH/week, Celsius will run out of liquid ETH in around 5 weeks.
Tweet -
At the same time, staked ETH, a crypto issued by Lido Finance, which is supposed to let you convert one ETH to one Staked ETH, started to descend around three days ago! Basically, this is what is going on right now!
A big part of Celsius's fund is either staked or lent out. So, they only have some liquid funds for withdrawals. Because of panic, so many people were withdrawing funds, causing services to run off liquid funds to pay back users, called Bank Run!
Celcius didn't mention when they will enable withdrawal again! The only this they said is - We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.
So, two things can happen here -
Celsius will re-enable withdrawal. No idea when. But when that happens, it is possible that users will still withdraw funds from Celsius because they have lost confidence.
Or, Celsius will just take the money and run away! Which would be bad for all of us! Someone noticed that Celsius was moving funds into FTX without mentioning anything!
Now the most crucial question is - Is this going to happen in most of the crypto exchanges? Like Huboi, Kraken or even Binance?
As far as I know, other exchanges are not affected by this event! But as the famous saying goes - Not your keys, not your coins!
Coinbase already warned that users could lose crypto if the company goes bankrupt! If the company goes bankrupt, your crypto suddenly becomes their crypto! So this is the warning that you may not be able to recover from all of the company's business failures.
I am not spreading FUD! Just trying to say that this is the risk you have to take when you keep money in the exchanges!
Unfortunately, if this crash is the start, it could continue over the next few days at an accelerated pace. These are kind of the sell-offs where we can see cryptocurrencies fall fifty percent a week.
At this moment, I am not buying any cryptocurrencies. This is the time when dips are dipping more! Because the current market situation is horrible, this crash may stay for a few weeks.
So, be careful!
Posted Using LeoFinance Beta
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