Lately, it’s been impossible to avoid the discussion about the state of the cryptocurrency industry. With Bitcoin (BTC-USD) wiping more than 70% of its value since December, projects suffering from hacks and even one network’s complete and utter collapse, the market is welcoming the victory parade of skeptics. Adding insult to injury are the bevy of crypto exchanges in trouble as they freeze withdrawals, preventing users from getting out while they can.
Indeed, the last couple of months have been a bloodbath for a market in decline. Macroeconomic factors like global sanctions and high oil prices are hitting Wall Street hard. They also add to a list of bearish catalysts for the crypto industry as its biggest assets — Bitcoin and Ethereum (ETH-USD) — struggle to reverse their losses.
While much of the industry is predicated on the “buy the dip and hold” philosophy, many investors are preferring to take their money elsewhere. In a single week at the end of June, more than $423 million flowed out of the crypto market.
This outflow is obviously becoming less of a trickle and more of a tidal wave. As such, exchanges are struggling to keep afloat. Investors are watching as some of the world’s biggest crypto trading floors brace themselves for a long crypto winter. Coinbase (NASDAQ:COIN), Gemini, BlockFi and Crypto.com have all rescinded offers to employees or laid off significant portions of their workforces. BlockFi ended up in too large a hole to climb out of; FTX acquired it last week for $240 million.
But many exchanges aren’t just giving their employees the short end of the stick. Customers, too, are suffering as these companies batten down the hatches.
Crypto Exchanges in Trouble Inflict Pain on Investors
Some of the crypto exchanges in trouble are keeping their customers strapped into a rollercoaster they don’t want to ride. A trend of withdrawal freezes is sweeping across the market, with lots of investors forced to wait out the volatility.
Withdrawal freezes occur when users of an exchange platform are barred from moving their assets off of the exchange. The reasons for this can be plentiful. But recently, most freezes are due to the volatility of the market threatening platforms’ liquidities. If too many users take their assets and leave an exchange, it can cause an exchange’s pool of tokens to dry up. Eventually, the platform might run out of liquidity entirely, making it impossible to operate.
Despite the considerable negative impacts they have on platform users, withdrawal freezes are a common way for exchanges to maintain liquidity stability even in the worst instances of market decline. Since mid-June, at least five different exchanges have frozen withdrawals for some period of time.
The most high-profile instances of withdrawal freezes are those of Celsius (CEL-USD) and Voyager Digital. The former was one of the first to take this desperate measure, causing CEL prices to drop more than 40%. Voyager Digital froze its withdrawals last week after revealing a $500 million exposure to Three Arrows Capital, a crypto firm which filed for Chapter 15 bankruptcy over the weekend after defaulting on a $670 million loan from Voyager. Other exchanges which froze withdrawals due to recent bear market factors include Vauld, CoinFLEX and crypto loan financier CoinLoan.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.