Celsius Customers Are Losing Hope for Their Locked-Up Crypto
Three weeks since the crypto lender said it was halting withdrawals, users want answers
It has been three weeks since crypto lender Celsius CELH 1.07%▲ Network LLC took the drastic step of halting customers’ withdrawals. Many people are starting to wonder if they will ever see their money again.
Alla Driksne says she has six figures worth of bitcoin and ethereum—her life savings—tied up in a Celsius account. On June 12, a Sunday, the company said it had paused customer withdrawals, saying it needed “to stabilize liquidity and operations.” Ms. Driksne couldn’t sleep for two days.
“Since it is such a huge company and there are so many people that trusted them, somewhere in the back of my head, I’m hoping maybe there’s a small, small chance of not losing everything,” said Ms. Driksne, who is 34 and creates online cooking courses.
The crypto market is crashing, and the resulting credit crunch is pummeling small-time traders and big-name companies. At least four other crypto firms—Babel Finance, CoinFlex, Voyager Digital Ltd. VOYG -17.14%▼ and Finblox—have told customers that they can’t withdraw their money or capped the amount they can take out.
Crypto companies like Celsius have sprung up in recent years to offer services that seem like traditional banking tasks, like paying interest on deposits and making loans. They often offer eye-popping interest rates on deposits, sometimes near 20%.
What some customers are learning the hard way is crypto lenders might look and act like the traditional finance system, but they lack the investor oversight and legal protections built into banks and brokerages. Notably, their deposits aren’t guaranteed by the federal government.
Celsius didn’t respond to requests for comment. State securities regulators in Texas, Alabama, Kentucky, New Jersey and Washington state are investigating Celsius’ decision to freeze customer accounts.
In a blog post Thursday, Celsius said it continues “to take important steps to preserve and protect assets and explore options available to us.”
“Our relationship with the community and our clients has been a source of pride for all team members at Celsius, and we will continue to share information with our customers as and when it becomes appropriate,” the company added.
Celsius has hired restructuring attorneys and consultants for advice on a potential bankruptcy filing, The Wall Street Journal previously reported. Terms of use on the Celsius website say that in a bankruptcy, customers might not be able to recover the cryptocurrencies in their accounts or the collateral they put up for loans.
Ms. Driksne opened a Celsius account after a friend mentioned its high interest rates. She started getting a bad feeling in early June, she said, after reading Twitter chatter about mounting financial troubles at the company. On Friday, June 10, Ms. Driksne tried to withdraw her money. Throughout the weekend, her transaction was listed as pending, she said. It was eventually canceled that Sunday, she said, the day Celsius announced the freeze. She had planned to put the money toward buying a house.
The plunge in prices for bitcoin and other cryptocurrencies is partly because of wider macro concerns. Stiff inflation is making the Federal Reserve increase interest rates, which is raising concerns about a potential recession and sending investors running from risky assets.
But investors also have concerns about the crypto industry in particular. Prices took a turn for the worse in early May after the collapse of two sister cryptocurrencies, Luna and TerraUSD.
The panic spread quickly. The market value of the entire crypto sector crashed, falling from about $1.7 trillion on May 1 to $872 billion as of last week, according to CoinMarketCap data.
Many crypto customers took out loans in which they pledged their crypto as collateral. Now that the value of their collateral is plunging, lenders can in many cases issue margin calls and seize it all.
John Buzolits, a 35-year-old commercial real-estate broker in Philadelphia, opened a Celsius account in March for his bitcoin. Using bitcoin as collateral, Mr. Buzolits took out a loan of $62,500 in a stablecoin called USD Coin.
Stablecoins are meant to maintain a peg to the dollar. Investors can earn high yields when they deposit stablecoins into so-called DeFi projects, short for decentralized finance.
In the wee hours of Sunday morning, June 12, Mr. Buzolits grew concerned and repaid his loan. He then proceeded to withdraw his six bitcoin, worth more than $170,000 at the time. The transaction got ensnared in a security check. He hasn’t gotten his bitcoin back.
Mr. Buzolits said he filed a complaint last week with the secretary of state’s office in Indiana, where he was living when he took out the loan.
“I think I’m a pretty levelheaded person, but it’s definitely causing anxiety because the six bitcoin is a healthy portion of my retirement,” he said. “Now I have to start over and rebuild from zero.”
Multiple traders complained about a lack of communication from the company. One is Jackson Ling, a 37-year-old angel investor in Malaysia who has about $2,000 of bitcoin in Celsius.
“Everyone’s been left in the dark here, nobody knows exactly what’s going on with them,” Mr. Ling said. “Are they insolvent or simply illiquid?”
Jake Greenbaum, a 32-year-old crypto influencer in Miami, is betting on a rebound. Mr. Greenbaum has solana tokens in his Celsius account that were worth more than $107,000 when the company announced the freeze.
Mr. Greenbaum, who calls himself the Crypto King on social media, assumes he isn’t getting his money back and chalks it up as the cost of doing business. He recently started selling his watches. He plans to use the money to buy more crypto.