More Crypto Exchanges Are Under Liquidity Crisis Following Celsius Bankruptcy

Conditions are challenging for most of the players in the crypto market. These months, many crypto companies have been facing liquidity crises, and some of them have even filed for bankruptcy or faced insolvency. The crisis in the cryto industry was primarily on the back of the collapse of high-profile token Terra​, Celsius Network's financial difficulties​, and Three Arrows Capital's loan default​. The shake-out is still reverberating through the system and expected to hit wide.

Prelude to the Crisis

The series of crashes began with the Terra UST debacle in May, which caused a sell-off and a crisis of trust across the cryptocurrency industry. The debacle rippled through crypto markets, wiping out more than $200 billion of wealth in a single day.

Celsius Network was one of the earliest victims of the liquidity crunch, announcing in mid-June that it would suspend withdrawals. The lender has officially filed for bankruptcy under inflationary pressures and extreme market volatility, making it the third major crypto company that went bankrupt in July, following Three Arrows Capital​, a crypto hedge fund, and Voyager Digital, another crypto lender.

Meanwhile, in Hong Kong, another crypto lender named Babel Finance has announced its own freeze on withdrawals and redemptions​, claiming it's "facing unusual liquidity pressures." This came just weeks after the company completed a $80 million Series B financing round at a valuation of US$2 billion.

Liquidity Problems Are Spreading

Hodlnaut, a Singapore-based lending cryptocurrency lending platform, is the latest company to join a growing list of embattled crypto platforms. Earlier this month, the company has suspended all withdrawals, swaps, and transfers, citing "recent market conditions". The company also said that it intends to withdraw its application to the Monetary Authority of Singapore (MAS) for an operating license.

Beleaguered crypto exchange Zipmex has also filed applications in Singapore seeking protection against bankruptcy​ amidst the threat of legal action from creditors. Zipmex was caught in the headlights of the downturn in the crypto market in early June owing to its exposure to Babel Finance. Babel froze withdrawals in mid-June amid liquidity pressures relating to over-leveraged crypto firms such as Three Arrows Capital and Celsius.

Earlier in July, Singapore-based crypto lender Vauld has suspended all withdrawals, trading and deposits on its platform as it looks at restructuring options. Vauld has seen withdrawals of around $198 million since June 12, the day when the downturn in crypto markets began to come to a head with crypto lender Celsius pausing withdrawals on its platform the following day.

FinBlox, a crypto staking company, has limited withdrawals while it surveys its damage from Three Arrows Capital. Finblox invested $3.6 million in Three Arrows Capital in December.

There are also some other factors that have contributed to the crashes of cryptocurrency exchanges. This month, crypto exchange Hotbit suspended trading, deposit, withdrawal and funding functions​. The reason is that a former Hotbit management employee who left Hotbit in April this year was involved in a project last year that law enforcement authorities now think is suspected of violating criminal laws.

It May be the Beginning of the Storm

Faced with steep market declines, some firms have locked customers out of their funds or initiated restructuring proceedings, while some firms have been forced to institute multiple rounds of cuts, including giants Coinbase and Huobi. Most recently, Australian crypto exchange Swyftx has had to lay off 21% of its staff to lower costs as it wades through the current bear market.

Some crypto companies are hoping to be rescued by turning to more stable counterparts. FTX has signed a deal giving it the option to buy crypto lending company BlockFi​ at a maximum price of $240 million, significantly lower than the firm's previous $4.8 billion valuation. In addition, Goldman Sachs is reportedly looking to raise $2 billion from investors to buy up distressed assets from troubled crypto lender Celsius.​

However, the news does not give a boost to the bleak market. Current market forecasts are generally murky, and there are fears that the recession will continue. It is very likely that more crypto exchanges join the closing bunch.