Amid steep losses in cryptocurrency prices and distress at many lenders, BlockFi announced a limit on withdrawals. The move is to prevent a rush to the exits as the company's investments are probably at a steep loss, and it may not be able to meet redemptions at current prices.

The company advertised above average interest rates to users and used these proceeds to invest in staking projects tied to stablecoins. In uptrending and flat markets, this strategy worked great, but the risks are becoming known as we enter a bear market.

In the near-term, the crisis may have been averted as the company got access to a $250 million credit facility from FTX which should allow it to avert a liquidity crisis.

While the natural comparison to what's going in the cryptocurrency market is to the dot-com bubble, there are also increasing parallels between it and the real estate bubble in the mid-2000s.

Notably, there were several blowups at the periphery of the industry in those funds and assets which were unusually leveraged to housing and help some of the worst-quality assets whether it was Countrywide Financial or Bear Sterns' CDO hedge funds.

Many of the assets that first started blowing up were leveraged and synthetic. It was a preview of what was to come as the entire edifice was built on the assumption that housing prices could not decline simultaneously across the US. There was also a downward spiral as losses at banks lend to a freeze in lending activity which compounded the pain.

Similarly, we are learning about how interconnected and synthetic many aspects of the crypto industry are at the moment, understated levels of systemic risk, and the possibilities of a doom or FUD spiral. We are seeing the failures of protocols and stablecoins like Terra and Luna. The next shoe to drop was weakness in crypto lenders which held these assets like Celcius which had to halt redemptions or risk being liquidated as the bulk of its assets are in coins that have declined or been lent out.

The essential issue is that if these 'lenders' are like banks, then they are bad banks. Imagine someone putting their deposits in a bank that only lent to one specific industry. No regulator would go along with this, because it would mean that all the depositors' funds would be at risk in the event of a downturn in that industry.