RIOT - Celsius files for bankruptcy: Crypto canary or 'winter' victim?

Temperatures may be rising outside, but things are getting colder in the cryptoverse. "Crypto winter" is a phrase that's being tossed around the sector, with cryptocurrencies losing $2T in market value since the height of a massive rally in 2021. The latest casualty was seen early Thursday, as Celsius Network, one of the world's largest crypto lenders, filed for Chapter 11 bankruptcy in New York, listing between $1B-$10B in assets and more than 100K creditors.

Backdrop: Nearly a month ago, Celsius froze all of its customer assets by pausing withdrawals from the network, as well as swaps and transfers on the platform. It's DeFi business model drew in depositors with high interest rates and access to loans rarely offered by traditional banks, claiming its risks were small and promising outsized returns. That was until a sharp selloff hammered the volatile crypto market, which Celsius coined "extreme market conditions" just hours after lashing out at investors that had raised concerns over withdrawals.

It's a broader symptom of what is going on in the industry, or better yet, what has gone on. The crypto market has been flooded with debt thanks to decentralized lending schemes, with the leverage exacerbated by investors looking for yield (compared to previous cycles that were largely based on crypto derivatives). Unsecured or undercollateralized lending also proved fatal for Three Arrows Capital and Voyager Digital, while the inability to meet margin calls has led to further contagion.

Next dominos to fall? "Given it is such a crowded market, and that exchanges rely to some extent on economies of scale, the current environment is likely to highlight further casualties," said James Butterfill, head of research at CoinShares. "We have seen examples of potential stress where miners have allegedly not paid their electricity bills, potentially alluding to cash flow issues. This is likely why we are seeing some miners sell their holdings." BlockFi CEO: We're a Goldman of crypto, not a Lehman Brothers; crypto will survive this downturn.

Related: Bitfarms ( BITF ), Canaan ( CAN ), CleanSpark ( CLSK ), HIVE Blockchain ( HIVE ), Hut 8 Mining ( HUT ), Marathon Digital ( MARA ), Riot Blockchain ( RIOT ).

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