“I trusted them with my savings:” Encryption investors struggle after account freezes

Months ago, Sydney-based Hamish Tipene took out two loans with Celsius Network. By buying a new home above his pre-approval rate, he strongly supported the cryptocurrency lender’s slogan “Unbank Yourself” and used his cryptocurrencies as collateral instead of selling them for cash.

But when the value of the encryption began to plummet a week ago, Tipene’s guarantee on the loan quickly plummeted and he received a margin call. He had to add more collateral.

Before he could do that, Celsius froze Tipene’s account, making it impossible to cover the margin in time. The company liquidated 69%, or $ 10,300, of its collateral. He now faces another margin call that needs an additional $ 10,000 for the rest of his loan, but with a shrinking $ 9,633 encryption savings frozen in the platform, he faces the same credit problem.

“I was trying to reach them for days. “You can not take away someone’s ability to resolve a situation and then punish them for not resolving it,” the 46-year-old carpenter told Yahoo Finance. “I trusted them with my finances and it is unfair.”

Last year, cryptocurrencies gave private investors the opportunity to secure wealth in what many saw as a once-in-a-lifetime money-making opportunity. Now, as the tide recedes for risky assets with cryptocurrencies hitting particularly hard, investors are reconsidering their confidence in some cryptocurrencies, including the Celsius Network, as companies have taken drastic action in the face of the liquidity crisis.

Crypto’s total market capitalization has fallen by more than $ 237 billion since the release of hot inflation data in May, from $ 1.15 trillion to $ 913 billion as of Monday morning, but since its peak in November lost 70% – more than two-thirds of its value – according to Coinmarketcap.

Accustomed to providing high returns for investors and growth to shareholders during the uptrend, industry players are now raising funds with many major trading venues, including Robinhood, Gemini, Crypto.com, BlockFi and Coinbase, announcing significant layoffs.

Then there is Celsius.

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

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

For Yevhenii Marchenko, based in Northern California, he may not have access to the $ 85,000 in Solana, Cardano and Chainlink crypto tokens that are locked on the platform. He has been a customer since November, when the encryption market peaked.

“Almost every channel related to YouTube encryption was Celsius, so I thought it was safe,” he told Yahoo Finance, adding that he had more confidence in Celsius as a US-based company. “It’s a really difficult and depressing situation.”

The logo of the Celsius Network and the representations of the cryptocurrencies are shown in this image, on June 13, 2022. REUTERS / Dado Ruvic / Illustration

Celsius has also offered little in the way of safeguarding its financial health, with customers and viewers speculating that the company is “at risk of insolvency”, which would jeopardize any additional collateral offered by investors.

Celsius has hired restructuring lawyers as well as bankers with Citigroup. Meanwhile, some of its customers are gathering around the cause to sue the company.

“As unsecured creditors, we are essentially at the back end of the bankruptcy court,” Ben Armstrong, a cryptographer and Celsius client, told Yahoo Finance. “We may not get more than $ 1 each yet, but at this point, for me, it’s to account for Celsius.”

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

But as the value of cryptocurrencies plummeted in the past two weeks – Bitcoin fell 29% for the month – Armstrong began threatening the company and its founder and CEO, Alex Mashinsky, via social media with a group lawsuit. . According to Armstrong, $ 2 million to $ 3 million of Bitboy Crypto’s own money is currently stuck on the platform.

“I already think the money is lost. It’s about defending all the people who watched my channel and trusted Celsius. “They will not be able to absorb a loss like me,” Armstrong said, noting that he has discussed possible scenarios with his lawyers. “It’s an obligation for these people to be held accountable for what they have done.”

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

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

While small investors may be less likely to get their money back in Celsius in a bankruptcy scenario, there may be a financial redemption in the small court, according to Joshua Browder, CEO of DoNotPay, a so-called “robot” helps people file small treatments using artificial intelligence.

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

Browder told Yahoo Finance if the crypto lender does not go bankrupt in the next two months, the small plaintiffs “can actually get their money back [Celsius’] corporate bank account first of all “.

Even if Celsius goes bankrupt, Browder argued, the dispute over small claims – $ 10,000 to $ 25,000 under state regulations – takes precedence over other unsecured creditors.

“Unless Celsius appears in court, investors will win by default. “Keep in mind that Celsius is completely flooded right now,” Browder said. “I do not think they will send executives across the country to defend a $ 10,000 lawsuit.”

An ardent supporter of the legal effort, Tipene himself can not file a petition in the US court because he lives in Australia. Instead, Tipene has given up hope of seeing his remaining assets, even after the second clearing of his loan, which he said he could not repay in time.

“Bitcoin can fall to $ 10 and it would not bother me because I think it will rise again,” he said. “It’s these companies. “They are playing with the money of the people and they should not escape it.”

David Hollerith covers cryptocurrencies for Yahoo Finance. I follow him @dshollers.

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