Babel Finance suspends withdrawals as crypto markets slump

A Bitcoin logo inside a BitBase cryptocurrency exchange in Barcelona, Spain, on Monday, May 16, 2022.

Angel Garcia | Bloomberg | Getty Images

Hong Kong-based Babel Finance temporarily suspended the withdrawals and redemption of crypto assets on Friday, as the crypto lender scrambles to pay its clients after the recent slump in the digital currency market.

Cryptocurrency valuations have plunged in recent weeks as investors dump risky assets in a rising rate environment, with bitcoin, which reached a record high of $69,000 in November, having lost more than half its value this year.

“Recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events. Due to the current situation, Babel Finance is facing unusual liquidity pressures,” the company said.

Crypto lenders gather crypto deposits from retail customers and re-invest them, proclaiming double-digit returns and attracting tens of billions of dollars in assets. However, the recent meltdown has lenders unable to redeem their clients’ assets.

Babel, which has 500 clients and limits itself to bitcoin, ethereum and stablecoins, raised $80 million in a funding round last month, valuing it at $2 billion. It had ended last year with $3 billion of loan balances on its balance sheet.

Earlier this week, U.S.-based retail crypto lending platform Celsius Network froze withdrawals and transfers between accounts “to stabilize liquidity” as the collapse of cryptocurrency TerraUSD in May triggered a rise in redemptions.

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The crypto industry just had one of its worst days ever

Bitcoin and other cryptocurrencies fell sharply as investors dump risk assets. A crypto lending company called Celsius is pausing withdrawals for its customers, sparking fears of contagion into the broader market.

Nurphoto | Nurphoto | Getty Images

Crypto has had a brutal first half of 2022, but few days have been this bad for the industry that’s built itself up around digital currencies.

On Monday, trading platforms halted withdrawals, companies cut jobs, and panicked investors dumped their holdings, dragging the market cap of crypto below $1 trillion, down from $3 trillion at its peak in November.

Bitcoin plunged to an 18-month low, falling below $23,000. The most valuable cryptocurrency tumbled by 15% in the past 24 hours, while ethereum, which is second to bitcoin, fell 17%.

The sell-off comes as investors rotate out of the riskiest assets due to macroeconomic headwinds and rising interest rates. But it’s worse than that. The action on Monday showed a fundamental mistrust of cryptocurrencies and the platforms that support them. What was already a deep downturn started to look like panic selling.

Here are some of Monday’s crypto lowlights:

The Celsius contagion effect

For weeks, concern has been growing that Celsius, one of the more popular crypto staking and lending platforms, is in the midst of a liquidity crunch. Celsius offers users yield of up to 18.63% on their deposits. It’s like a product a bank would offer, except with none of the regulatory safeguards.

Celsius’ cel token dropped from over $7 to about 33 cents in the last year — and it’s down more than 50% in the past week. Celsius is the biggest holder of the token.

Meanwhile, the company’s $26 billion in client funds has more than halved since October.

Celsius had previously admitted to losing funds, though it didn’t specify how much, as a result of the $120 million hack of decentralized finance platform BadgerDAO.

Early Monday, Celsius shocked the market, announcing that all withdrawals, swaps, and transfers between accounts have been paused due to “extreme market conditions.” In a memo addressed to the Celsius Community, the platform also said the move was designed to “stabilize liquidity and operations.”

“We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” the memo said.

Celsius effectively locked up its $12 billion in crypto assets under management, raising concerns about the platform’s solvency. The news rippled across the crypto industry, reminding some of what happened in May, when a failed U.S. dollar-pegged stablecoin project lost $60 billion in value and dragged the wider crypto industry down with it.

Shares of crypto trading platform Coinbase dropped 11% on Monday to their lowest since the company went public in April 2021.

Read more about tech and crypto from CNBC Pro

Binance pauses bitcoin withdrawals

Binance also hit the pause button on Monday. The world’s largest crypto exchange halted bitcoin withdrawals for over three hours “due to a stuck transaction causing a backlog.”

Although CEO Changpeng Zhao said the fix would only take a half hour, he later amended his estimate, saying it would take “a bit longer” than initially anticipated. By about 11:30 a.m., service had been restored.

“A batch of $BTC transactions got stuck due to low TX fees, resulting in a backlog of BTC network withdrawals,” Binance wrote in a tweet.

In a series of post-mortem tweets, the exchange noted that deposits were “unaffected” and explained that the problem stemmed from scheduled repair work.

Zhao assured customers that all funds were “SAFU.” That’s a reference to the “Secure Asset Fund for Users,” which was set up by Binance in 2018 to protect users’ holdings.

During the withdrawal outage, Zhao tweeted that it was still possible for holders to take out their bitcoin on other networks like CEP-20.

Layoffs ahead of ‘crypto winter’

Peter Thiel-backed start-up BlockFi has joined a growing list of crypto companies slashing costs by cutting jobs.

On Monday, the company announced it would be reducing headcount by about 20%. Prior to the latest cuts, the company expanded from 150 employees at the end of 2020, to more than 850.

CEO Zac Prince said in a tweet that BlockFi has been impacted by the “dramatic shift in macroeconomic conditions,” which have had a “negative impact” on growth.

It’s becoming a familiar theme for companies in the space.

Late last week, Crypto.com announced a staff reduction of 260 people, just seven months after the company gained naming rights to the arena that’s home to the NBA’s Los Angeles Lakers in a $700 million deal. Earlier this month Gemini said it would be laying off 10% of its workforce and warned that the industry is in a “contraction phase” known as “crypto winter.”

Meanwhile, Coinbase has extended its hiring pause for the “foreseeable future” and plans to rescind some job offers.

WATCH: UST’s crash has some investors reevaluating their crypto investments

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Jamie Dimon’s JPMorgan says bitcoin has ‘significant upside’ now

Bitcoin’s recent slide has left the digital token well below its fair price, giving the cryptocurrency “significant upside” now, JPMorgan Chase said in a research note this week.

The bank said bitcoin was undervalued by 28%, and put its price target for the coin, which was trading at just above $29,600 on Thursday afternoon, at $38,000 according to Markets Insider. Bitcoin fell below $26,000 earlier this month for the first time since December 2020, just as stock markets have been similarly pummeled — largely due to inflation fears.

“The past month’s crypto market correction looks more like capitulation relative to last January/February, and going forward, we see upside for Bitcoin and crypto markets more generally,” strategist Nikolaos Panigirtzoglou wrote on Wednesday.

JPMorgan’s positive outlook is notable because CEO Jamie Dimon is a longtime cryptocurrency skeptic. Dimon has said that he “personally think[s] that bitcoin is worthless,” though he has acknowledged that many of his clients feel differently.

“I’m not a bitcoin supporter. I don’t care about bitcoin. I have no interest in it,” he said last year. “On the other hand, clients are interested, and I don’t tell clients what to do.”

Last summer, JPMorgan began giving wealth management clients access to a six crypto funds, to add bitcoin exposure to their portfolios. That’s despite Dimon’s prior comments that bitcoin has “no intrinsic value” and that “regulators are going to regulate the hell out of it.”

On Wednesday, Securities and Exchange Commissioner Hester Peirce told CNBC that the U.S. has “dropped the regulatory ball” with respect to crypto. She called on Congress to clarify the SEC’s regulatory role, so her agency can take more proactive steps against crypto fraud going forward.

“We’re not allowing innovation to develop and experimentation to happen in a healthy way, and there are long-term consequences of that failure,” Pierce said.

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Don’t miss: Why Kevin O’Leary says every teen should invest part of their summer job income

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managing your financial life using digital coins

Many people have bought and sold cryptocurrencies as an investment, yet trying to live on a salary paid in crypto is tricky. 

Alyssa Howell spent much of her career in the gold-mining industry before joining a crypto-wallet company last fall that pays all of its employees in bitcoin. The Denver-area resident said learning the ins and outs of the crypto industry — different types of virtual wallets, non-fungible tokens (NFTs), and browser extensions — has been quite an education.

“It has been a very steep learning curve for me,” said Howell, 35, who works in investor relations for Exodus, a bitcoin and crypto wallet firm. “It is just a new industry, but also it’s very fast-moving.

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Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

“So there’s always something new within crypto that has evolved.”

Howell never owned digital currencies before taking this job. Now she is paid in bitcoin on the first of every month — based on her salary in U.S. dollars. 

“If bitcoin is $50,000 (per token) and I make $25,000 per month, I’ll receive half of a bitcoin,” said Howell. “Now on the first [of the month], our company sets the price, so at a certain time on the first of every month, they’ll say this is the exchange rate for bitcoin.” Employees can then convert their crypto paychecks into dollars, with the company covering the conversion fees.  

Yet, this single mother of two has gone all-in with crypto. She recently purchased a new home, but struggled with the first lender she tried not accepting her bitcoin income. 

Allysa Howell, left, works for a crypto-wallet company that pays all of its employees in bitcoin.

“I was disqualified from a mortgage, which made me really nervous,” said Howell as she reflected on the experience. “Luckily, that’s not the standard; the world is changing, the world is evolving.”

She found a lender to accept her bitcoin income and it was one that also let her make mortgage payments in cryptocurrency. However, the loan was recently sold and the new servicer will not take crypto payments.

“It was a huge disappointment for me,” said Howell, “I’ll have to buy fiat [U.S. dollars] to pay my mortgage, and I really try my best to live within the crypto space.”

Howell said she keeps 10% of her bitcoin pay for retirement savings and isn’t worried about the currency’s ups and downs. “I’m long-term cryptocurrency so I’m not watching the volatility on the day today,” she said. “I’m here for the next five years, the next decade, the next two decades.

“That’s where I really see the opportunity,” she added.

Exodus’ CEO JP Richardson said the company pays its employees in bitcoin to help make virtual currencies more mainstream. 

“By us backing the technology and by us embracing that technology and paying our employees with the technology, we are saying that we believe in this long-term,” Richardson said.

Richardson also lives much of his personal financial life using crypto and he keeps enough money in U.S. dollars to manage expenses, he said, “in case, God forbid, something were to happen to cryptocurrency.” 

Bitcoin prices have been a on a roller coaster. The price hit a high above $68,000 and has traded below $30,000 for the last two weeks.

Financial advisors caution investors to balance crypto investments with other financial goals. Before investing in crypto, make sure you have sufficient emergency savings and disability and life insurance and are saving enough for retirement.  

Yet advising clients can be tricky.

Ersinkisacik | Istock | Getty Images

“We’re trying to figure out as an advisor, and as a fiduciary, what is the best way for us to help our clients in this space,” said Catherine Valega, a certified financial planner and chartered alternative investment analyst with Green Bee Advisory, based in the Boston area.

Other considerations include fees incurred when exchanging bitcoin for dollars as well as tax implications. 

President Joe Biden issued an executive order in March for regulators to consider the risks and benefits of cryptocurrencies.

In the meantime, financial advisors warn consumers and investors that cryptocurrencies do not provide the same protections that come with a traditional bank or brokerage account. 

Still, Howell views cryptocurrency as the future and wants her children to learn its value.

“What’s important for me to teach them is that money has value,” she said. Even though you can’t see it or feel it, we ascribe value to it.

“I am really focused on raising them to be prudent and spend well.” 

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Bitcoin bounces after briefly dipping below $30,000

Bitcoin dropped below the $30,000 level late Monday, breaching a symbolic price threshold before seeing a slight recovery early Tuesday.

At its lowest price point, the world’s most popular cryptocurrency was more than 12% lower on the day — and more than 56% off its November all-time high of around $69,000. It later recovered from those losses and was trading at $31,245.48 on Tuesday, according to data from Coin Metrics.

The last time bitcoin traded below $30,000 was in July 2021, when the digital asset traded as low as $29,839.80. Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank, previously told CNBC that bitcoin would need to maintain a key psychological price level of $33,000 to stave off further deterioration of technical sentiment.

The price drop comes amid a broader, multi-day sell-off that has ensnared much of the crypto market and equities.

Stocks have been on a steady decline since Thursday, when the Dow Jones Industrial Average and Nasdaq Composite each posted their worst single-day drops since 2020.

For the last year, bitcoin and other major cryptocurrencies have tracked the movement of tech stocks, and some analysts say that this close correlation between bitcoin and the Nasdaq challenges the argument that the cryptocurrency functions as an inflation hedge.

Developments elsewhere in the crypto industry may have hurt sentiment around bitcoin. On Monday, algorithmic stablecoin UST fell well below its $1 peg. In Congressional testimony on Tuesday, Treasury Secretary Janet Yellen pointed to that event as an example of financial stability risks from crypto.

— CNBC’s Jesse Pound contributed to this report.

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Bitcoin powers a fast new way to send U.S. dollars around the world

A visual representation of Bitcoin cryptocurrency.

Edward Smith | Getty Images

There’s a new and low-cost way to quickly send U.S. digital dollars around the world without a bank. And it’s built on bitcoin.

Blockchain start-up Lightning Labs announced Tuesday that it’s launching the Taro protocol, a technology that will route fiat-pegged stablecoins and other digital assets through the bitcoin monetary network. The project is still in development mode.

Taro uses Lightning, a payments platform built on top of bitcoin’s base layer that enables global, high volume, virtually instantaneous, and low-fee transactions using the security of the bitcoin blockchain.

“It’s one of those things where people don’t really know how the credit card system works – and it just works,” Lightning Labs CEO Elizabeth Stark told CNBC.

Typically, this ‘layer two’ payments platform is all about making bitcoin easier to spend and receive – but Lightning Labs has decided to extend the use case of this tech to other types of virtual cash.

“With this technology, you could route all the world’s currencies through bitcoin,” said Stark.

“People will be able to seamlessly go between bitcoin and say, a USD stablecoin, or peso, euro, yen, etc. And they can send those globally, instantly and with extremely low fees,” she said.

How it works

There is bitcoin, the asset class, and then there’s the global interoperable bitcoin monetary network. Lightning Labs is piggybacking off the latter.

You can think of Taro’s payment workflow as enabling bitcoin to serve as a hybrid of the SWIFT financial messaging system (the communication layer) and correspondent banking (routing component).

Typically, all nodes must agree to confirm a transaction on the bitcoin network, verifying every transaction on the blockchain. The process highlights one of bitcoin’s greatest strengths: its high degree of network decentralization, which is a big part of what ensures its security. But it is also relatively slow, averaging five transactions per second on bitcoin’s base layer, and can be expensive.

On the Lightning Network, not all participants in the network need to agree. Instead, nodes only verify transactions with which they are directly interacting.

That difference is key. Stark tells CNBC that it’s possible to execute hundreds of thousands of transactions per second on Lightning.

And then there’s the cost.

“Lightning transactions can be fractions of a penny…while a bitcoin transaction at the core protocol layer can be much more expensive than that,” said Alyse Killeen, founder and managing partner of bitcoin-focused venture firm Stillmark.

Twitter integrated Lightning tipping in 2021 and the technology is already deployed around the world in places like El Salvador, which made bitcoin legal tender in Sept. 2021.

But Lightning Labs says that the Taro protocol marks a major step in Lightning’s capacity to serve as the underlying value transfer protocol of the internet.

“From our standpoint, we’re particularly interested in the fiat and stablecoin aspects, because we’re really big into emerging markets,” explained Stark. “That’s something near and dear to our hearts. We’ve seen a lot of adoption there, and there’s a big demand for that.”

The ultimate goal is to create a frictionless on-ramp to the global economy requiring only a mobile phone, in order to include as many people as possible in the process.

Lightning Labs – which also announced it raised $70 million in Series B funding led by early Tesla and SpaceX backer Valor Equity Partners – says it is releasing the technical spec for the Taro protocol, so that it can incorporate feedback from developers as it continues to build the protocol.

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