Another disaster waiting to happen? Babel Finance suspends cryptocurrency withdrawals. According to billionaire Mark Cuban, the recent downturn in the crypto market would have a "cleansing" effect.
Babel Finance, a Hong Kong-based crypto-financial services provider, joins the list of companies struggling to cope with the current bear market. The business officially suspended digital assets and their redemption on Friday.
Why are Babel halting withdrawals?
The current unfavorable conditions in the cryptocurrency market significantly impact the company. As a result, it has had difficulty repaying its investors. Babel Finance is the latest crypto loan company to struggle with the cryptocurrency market's instability.
According to several media outlets, the digital asset lender stated that it is experiencing "uncommon liquidity pressure." Therefore, it had no choice but to make this announcement. Bitcoin has lost more than 60% of its value since reaching an all-time high of $69,000 last November. Investors continue to sell their risk assets (including Bitcoin) following tighter central bank monetary policies.
Is another crypto company collapsing?
An official statement from Babel Finance reads:
"We have unusual liquidity pressures. Strong market volatility has contributed to risks that affect all institutional players in the crypto market, including us."
It seems that the succession of crypto collapse will not end soon. Every day there is news of one or more cryptocurrency companies collapsing or on the verge of collapse. Three Arrows Capital's recent insolvency problems are still fresh in investors' minds.
In the wake of Three Arrows Capital's uncertainty, one of its subsidiaries (Finblox) announced that monthly withdrawals on its platform are now limited to $1,500. It also announced that it no longer offers incentive distribution.
Will Babel Finance solve its liquidity problems?
Babel Finance's problems make it clear that many crypto lending firms feel the heat from the current bear market. However, the crypto lending firm has revealed that it is in discussions with all relevant parties to find a solution and protect its customers. Last month, Babel raised $80 million in Series B funding based on the company's $2 billion valuation.
It is important to note that the company's outstanding borrowings increased by $1 billion between February and December 2021. Each Babel derivatives trading transaction exceeds $800 million. Since it began trading, the company has traded more than $20 billion of options contracts.
Babel Finance is not the only cryptocurrency company to halt withdrawals in recent times. Earlier this week, Celsius announced the suspension of digital asset withdrawals and exchange and transfer products. Celsius' announcement revealed the growing lending problems faced by crypto lending platforms.
Following this announcement by Celsius, the price of its token dropped 50% in 24 hours. In addition, leading cryptocurrency exchange Binance suspended Bitcoin withdrawals, citing network congestion. The collapse of the Terra network and the continued drop in Bitcoin's price suggest that none of the mentioned crypto companies will recover soon.
Cuban: The bitcoin price drop will clean up the market
According to billionaire Mark Cuban, the recent downturn in the cryptocurrency market has investors fearful of what could happen in the future, who also claimed that the downturn would have a "cleansing" effect on the market.
Cuban said the collapse of the Terra (Moon) cryptocurrency had a ripple effect on the crypto industry. This week alone, two major companies, Celsius Network and Three Arrows Capital faced insolvency problems. At the same time, the cryptocurrency market capitalization is falling below $1 trillion.
"The cryptocurrency market has seen an explosion of failed and troubled projects amid a severe recession that makes investors wary of what comes next. As Warren Buffett says, 'Only when the tide goes out do you know who's swimming naked, Mark Cuban
Cleaning up the market According to Cuban, the downturn in the cryptocurrency market "will have a cleansing effect and will be a source of innovation."
In May, Mark Cuban suggested that most companies using Non-Fungible Tokens (NFT) and Decentralized Finance (DeFi) would exit the market, leaving only companies that have unlocked the potential of smart contracts. The billionaire also claimed that since cryptocurrencies tend to correlate with stocks, interest rate hikes by the US Federal Reserve could cause both investment classes to struggle.
Cuban further said that bear markets benefit the evolution of cryptocurrencies, as developers get forced to innovate and solve real-world problems using digital assets. Welcome to the bear market Many cryptocurrency experts agree with Cuban regarding the benefits of the bear market. After LUNA's collapse, several big names stepped forward to say that the market would dump projects with no real value, which is suitable for the market in the long run. Web3 Foundation CEO Bertrand Perez was one of the names that said many tokens and projects should get phased out.