‘I trusted them with my savings:’ Cryptocurrency Investors Struggle After Frozen Accounts

Months ago, Sydney, Australia-based Hamish Tipene took out two loans with Celsius Network. Buying a new home above his pre-approval rate, he staunchly supported the cryptocurrency lender’s motto “Unbank Yourself” and used his cryptocurrency holdings as collateral rather than selling them for cash.

But when the cryptocurrency’s value started to plummet a week ago, the collateral Tipene offered for the loan quickly diminished and he received a margin call. He needed to add more guarantees.

Before he could, Celsius froze Tipene’s account, making it impossible to answer the margin call in time. The company liquidated 0.59 of a bitcoin, a value of $11,800 at today’s rate. He now faces another margin call that would wipe out another $13,000 worth of bitcoin, but with his account still frozen, he faces the same dilemma.

“I tried to reach them for days. You can’t remove someone’s ability to solve a situation and then punish them for not solving it,” the 46-year-old carpenter told Yahoo Finance. “I trusted them with my savings and that’s unfair.”

Over the past year, cryptocurrencies have given retail investors the chance to secure wealth in what seemed to many a once-in-a-lifetime opportunity to make money. Now, as the tide is turning away from risky assets with hard-hit cryptocurrencies, investors are rethinking their reliance on some cryptocurrency companies, including Celsius Network, after the companies took drastic action in the face of a liquidity crisis.

The cryptocurrency’s total market capitalization has dropped by more than $237 billion since the release of May’s high inflation data, from $1.15 trillion to $913 billion on Monday morning, but since the November peak. the number has lost 70% – more than two-thirds of its value – according to Coinmarketcap.

Used to providing high returns for investors and growth for shareholders during the bull market, industry players are now recouping capital with several major trading venues including Robinhood, Gemini, Crypto.com, BlockFi and Coinbase announcing significant layoffs.

Then there’s Celsius.

The company offers high-yield interest accounts, often misinterpreted as bank-level savings accounts, to retail investors. According to its website in early May, Celsius had 1.7 million users and held $12 billion in customer funds, most of which are retail.

For more than a week, the company froze its customer accounts to stabilize its operations. But the move has also made it more difficult for customers to meet margin requirements, as in the case of Tipene.

For Northern California-based Yevhenii Marchenko, he cannot access the $85,000 worth of Solana, Cardano and Chainlink crypto tokens locked on the platform. He has been a customer since November, when the cryptocurrency market peaked.

“Almost every cryptocurrency-related YouTube channel recommended Celsius, which is why I thought it was safe,” he told Yahoo Finance, adding that he had more confidence in Celsius as a US-based company. “It is a very difficult and depressing situation.”

The Celsius Network logo and depictions of cryptocurrencies are seen in this illustration taken on June 13, 2022. REUTERS/Dado Ruvic/Illustration

Celsius also offered little in the way of assurance of its financial health, causing customers and viewers to speculate whether the company is “risking insolvency”, which would jeopardize any additional guarantees offered by investors.

Celsius hired restructuring lawyers and bankers from Citigroup. Meanwhile, some of its clients are rallying around the cause to sue the company.

“As unsecured creditors, we are basically at the end of the line in bankruptcy court,” Ben Armstrong, a crypto influencer and Celsius customer, explained to Yahoo Finance. “We probably won’t get more than $1 each yet, but right now, for me, it’s about holding Celsius accountable.”

Behind the brand and content company Bitboy Crypto, which has over 3 million social media subscribers, Armstrong has promoted Celsius by running a paid affiliate program for the company on his website, as well as appearing as a guest on Celsius’ own podcast. .

But as the value of crypto assets has declined over the past two weeks – Bitcoin is down 29% for the month – Armstrong has started threatening the company and its founder and CEO Alex Mashinsky on social media with a class action lawsuit. According to Armstrong, currently $2 million to $3 million of Bitboy Crypto’s own money is locked up on the platform.

“I’m already considering that the money has run out. It’s about defending all the people who watched my channel and trusted Celsius. They won’t be able to absorb a loss like I am,” Armstrong said, noting that he discussed possible scenarios with his attorneys. “It’s about holding these people accountable for what they did.”

A cryptocurrency ATM is pictured at a store in Union City, New Jersey, USA, May 19, 2021 REUTERS/Mike Segar

A cryptocurrency ATM is pictured at a store in Union City, New Jersey, USA, May 19, 2021 REUTERS/Mike Segar

While small investors may have a lower chance of getting their money back from Celsius in a bankruptcy scenario, there could be financial bailouts in small claims court, according to Joshua Browder, CEO of DoNotPay, a so-called “robot-lawyer” that helps people file smaller lawsuits using artificial intelligence.

The service, which is also backed by some of the biggest cryptocurrency players such as venture giant Andressen Horowitz (a16z) and FTX founder and CEO Sam Bankman-Fried, charges a fee for its service, and on Monday morning Monday, received more than 1,000 claims. against Celsius last week.

Browder told Yahoo Finance that if the cryptocurrency lender doesn’t declare bankruptcy within the next two months, the small court claimants “may actually get their money back.” [Celsius’] corporate bank account before everyone else.”

Even if Celsius goes bankrupt, Browder argued, judgment in small claims suits — from $10,000 to $25,000 based on state regulations — takes precedence over other unsecured creditors.

“Unless Celsius appears in your court case, investors will win by default. Keep in mind that Celsius is completely flooded right now,” Browder said. “I don’t think they’re going to send executives across the country to fend off a $10,000 lawsuit.”

A staunch supporter of legal efforts, Tipene himself cannot file a small claims case in US court because he lives in Australia. Instead, Tipene has given up hope of seeing his assets remaining, even after the second loan is settled, which he says he cannot repay in time.

“Bitcoin could go down to $10 and that wouldn’t bother me because I think it’s going to go up again,” he said. “It’s these companies. They’re playing with people’s money and they shouldn’t get away with it.”

David Hollerith covers cryptocurrencies for Yahoo Finance. Follow him @dshollers.

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