Crypto lending is going sour for many investors who are now seeing very real risks play out as companies like Celsius go under, leaving withdrawals and money frozen.
“I knew there were risks,” said a client in an unsigned letter to the judge overseeing the multi-billion-dollar Celsuis bankruptcy, one of many such letters. “It seemed a worthwhile risk.”
Celsius CEO Alex Mashinsky made the platform out to be a safe place to invest, according to reporting by Barron’s. Clients deposited crypto for high interest, and the firm loaned out and invested the deposits.
But as crypto itself faced mounting issues, with bitcoin shedding around 60% of its value since an all-time high in November, the firm could no longer cover its loans.
See also: Market Crash Tests Crypto’s Survival of the Fittest
Celsius reportedly owed $4.7 billion to users, per a court filing from earlier in July. There’s so far not a clear way out for the company.
Advertisement: Scroll to Continue
Since withdrawals and funds have been frozen, letters have been posted to a public online court docket detailing users’ tragic stories of losing their savings.
The letters often featured the theme of people acting on faith that Celsius was “safer than banks,” according to one letter saying the person had been a customer since 2019.
Another letter said the writer felt “betrayed, ashamed, depressed, angry.”
Celsius’s freezing of withdrawals generated an avalanche of problems and caused many investors to realize that they could not get their money back because of customer agreements they had signed.
Read more: Bankrupt Crypto Lender Celsius: We Own Customers’ Funds
The agreements said that the funds deposited were “Celsius’s property” and not the customers’.
Frances Coppola, a crypto columnist, called Celsius “a shadow bank” rather than an asset manager.
“Deposits in banks aren’t even ‘customer assets,’ let alone ‘assets under management.’ They are unsecured loans to the bank. They are thus liabilities of the bank and fully at risk in bankruptcy. Depositors in a bank do not have any legal right to return of their funds.”
For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.
