Friday, September 30, 2022

Lending firms are at increased risk due to the fall in the crypto market

Cryptocurrency lending firms and their clients are facing huge financial risks due to the slump in the crypto market and lack of regulatory protection. These firms offered loans at very high interest rates to grow the business even though they were paying hefty rates on deposits. Celsius Network, one of the major crypto lending firms, banned transactions last month.

“Celsius Network is going to go bankrupt soon,” said Columbia University professor Omid Malekan. AFP’s Report As per reports, some other crypto lending firms like CoinFlex and Babel Finance have also blocked withdrawals. These firms allowed clients to deposit cryptocurrencies and receive interest on them or borrow them as collateral. Many clients of these firms are facing difficulties due to suspension of transactions. They are also likely to lose their funds.

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The decision of banning the transactions of the clients of Celsius Network is being investigated by the regulators. Celsius had said that due to the poor condition of the crypto market, it is prohibiting withdrawal and transfer between accounts. The US-headquartered firm’s decision to freeze transactions is being probed by some regulators, including the Texas State Security Board. The US Securities and Exchange Commission (SEC) has also sought information from the firm in this regard. Joseph Borg, director of the Alabama Securities Commission, said, “I am concerned that the firm’s clients, including retail investors, may be required to redeem their assets but they may do so. This could add to their financial difficulties.”

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Many firms in this segment are cutting their workforce to reduce costs. Coinbase, one of the major crypto exchanges, also recently decided to reduce its workforce by 18 percent. Headquartered in the US, the firm says that it has taken this step to cut costs in this difficult period of the industry. The decision is expected to result in layoffs of over 1,000 employees of the exchange.

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