Last year’s run on crypto platforms like lender Celsius Network were “spearheaded by customers with large holdings, some of which were sophisticated institutional customers,” according to research from the Federal Reserve Bank of Chicago.
In the case of Celsius, 35% of all withdrawals in June — before the lender froze withdrawals and eventually filed for bankruptcy — were by owners of accounts of more than $1 million, according to Chicago Fed estimates. Owners of accounts with more than $500,000 in investments were the fastest to withdraw and withdrew proportionately more of their funding, the research said.
The Chicago Fed used bankruptcy filings to characterize outflows of customer funds from lenders Celsius, BlockFi and Genesis Global Capital LLC, in addition to FTX and broker Voyager Digital, all of which went bankrupt last year, leaving hundreds of thousands of retail investors in a lurch. It also said the platforms’ run risk and planning for a potential rush of withdrawals was inadequate in the lead-up to the collapse of FTX and the Terra-Luna ecosystem.
Customers withdrew a quarter of their investments held by FTX within just one day, the Chicago Fed found. Voyager lost nearly 39% of its holdings in the June 12-July 2 run, after losing nearly 14% to outflows in May.
“These episodes together formed a classic financial crisis in a novel setting that has raised urgent policy concerns,” wrote the study’s authors Radhika Patel, a Chicago Fed research assistant, and Jonathan Rose, historian of the Federal Reserve System.
Actual bank runs — such as the recent collapse of Silicon Valley Bank — can happen even faster than crypto bank runs, Rose said in an interview. That’s largely a function of the type of depositors who participate in these platforms and technology and processes being used to make withdrawals.
“The runs on those banks were extraordinarily large and fast — the largest and fastest we’ve ever seen,” Rose said.
(Updates with comments in the last two paragraphs.)
