Months ago, Sydney-based Australia Hamish Tippene took out two loans from Celsius Network. Buying a new home above the pre-approval rate, he strongly supported the crypto lender’s motto “Unbank Yourself” and used his cryptocurrencies as collateral instead of selling them for money.
But when the value of the cryptocurrency began to fall sharply a week ago, the collateral provided by Tipene for the loan quickly declined and he received margin. He had to add more collateral.
Before succeeding, Celsius froze Tippene’s account, making it impossible to respond to a margin call in time. The company liquidated 0.59 of one bitcoin, worth $ 11,800 at today’s exchange rate. He now faces another margin claim that will destroy another $ 13,000 in bitcoins, but with his account still frozen, he faces the same dilemma.
“I tried to contact them for days. “You can’t take away 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.”
Last year, cryptocurrencies gave retail investors a chance to make a fortune from what many saw as a once-in-a-lifetime opportunity to make money. Now that the wave of risky assets with cryptocurrencies has been particularly hard hit, investors are rethinking their confidence in some crypto companies, including Celsius Network, after companies took drastic steps in the face of the liquidity crisis.
Crypto ‘s total market capitalization has fallen by more than $ 237 billion since its launch Hot data on inflation in Mayfrom $ 1.15 trillion to $ 913 billion on Monday morning, but since its peak in November, the figure has lost 70% – more than two-thirds of its value – according to Coinmarketcap.
Accustomed to providing high returns to investors and shareholder growth during the bullish market, industry players are now returning capital with several major trading venues, including Robinhood, Gemini, Crypto.com, BlockFi and Coinbase, announcing significant cuts.
Then there is Celsius.
The company offers high-yield interest rate accounts, often misinterpreted as savings accounts at the bank level, to retail investors. According to its website, Celsius had 1.7 million users in early May and held $ 12 billion in customer funds, most of which were retail.
For more than a week, the company froze its customer accounts to stabilize its operations. But this move also makes it difficult for customers to meet margin requirements, as is the case with Tipping.
For Northern California-based Evgeny Marchenko, he does not have access to $ 85,000 in crypto tokens Solana, Cardano and Chainlink, locked in the platform. He has been a customer since November, when the cryptocurrency market peaked.
“Almost every cryptocurrency channel on YouTube recommended Celsius, so I thought it was safe,” he told Yahoo Finance, adding that he has more confidence in Celsius because it is a US-based company. “It’s a really difficult and depressing situation.”
Celsius has also offered little to guarantee its financial health, leading customers and viewers to speculate on whether the company is “risking insolvency“Which would jeopardize any additional collateral that investors offer.
Celsius has hired restructuring lawyers as well as bankers at Citigroup. Meanwhile, some of her clients are banding together to sue the company.
“As unsecured creditors, we are essentially at the back of the bankruptcy court,” explained Ben Armstrong, a crypto-influential man and Celsius client for Yahoo Finance. “We still probably won’t get more than $ 1 each, but at the moment it’s about holding Celsius accountable.”
Behind the brand and content company Bitboy Crypto, which boasts more than 3 million social media subscribers, Armstrong promoted Celsius by launching a paid affiliate program for the company on its website, and appearing as a guest on Celsius’ own podcast .
But as the value of cryptocurrencies declined in the past two weeks – bitcoin fell 29% in the month – Armstrong began threatening the company and its founder and CEO Alex Maszynski on social media with a class action 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 gone. It’s about defending all the people who watched my channel and believed in Celsius. They will not be able to bear the loss as much as I can, “Armstrong said, noting that he had discussed possible scenarios with his lawyers. “It’s about holding these people accountable for what they did.”
While small investors may be less likely to get their money back from Celsius in a bankruptcy scenario, there may be a buyout in small claims court, according to Joshua Browder, CEO of DoNotPay, the so-called “robo-lawyer.” which helps people file small cases with the help of 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-Freud, charges a fee for its service and received more than 1,000 lawsuits on Monday morning. Celsius last week.
Browder told Yahoo Finance that if the cryptocurrency creditor did not go bankrupt in the next two months, the small plaintiffs “could actually get their money back from [Celsius’] corporate bank account before everyone else. ”
Even if Celsius goes bankrupt, Browder argues, small claims – $ 10,000 to $ 25,000 under government regulations – take 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 don’t think they will send leaders across the country to defend themselves against a $ 10,000 lawsuit.
A staunch supporter of the legal effort, Tipene himself cannot sue in the US court for small claims because he lives in Australia. Instead, Tipene gave up hope of seeing his remaining assets, even after his second liquidation of the loan, which he said he could not repay on time.
“Bitcoin could fall to $ 10, and that won’t bother me because I think it’s going to go up again,” he said. “These are the companies. They are playing with people’s money and they should not miss it. “
David Cholerit covers cryptocurrency for Yahoo Finance. Follow him @dsholers.