Celsius Customers Feel Betrayed as Bankruptcy Swallows Assets. Here’s How to Manage Crypto Risk
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Crypto platforms are not as secure as banks no matter what they claim.
Important points
- Celsius customers hope heartfelt letters will convince bankruptcy courts to return their money.
- Crypto platforms do not have FDIC insurance or the other protections offered by bank accounts.
- Always read the terms and conditions before committing money to any crypto platform and only invest money you can afford to lose.
Celsius, the crypto lending platform that collapsed over the summer, owes $4.7 billion, according to the bankruptcy filing. That’s a lot of money. For some retail investors, it was their life savings. For others, it was money they wanted to use for a house deposit or to fund their retirement. They trusted Celsius and thought it was a safe alternative to a savings account.
Then, in June, Celsius froze payouts, and that trust was destroyed. Many customers wrestle with the possibility that they could lose their money altogether. Celsius owes about $1.2 billion more than it holds, and retail investors will be at the bottom of the pecking order when it comes to recovering funds. It is now in the hands of the bankruptcy courts, who must decide who gets what.
Celsius customers are fighting for their life savings
A major problem for Celsius customers is that they are classified as unsecured creditors. If your money is held at a traditional bank or brokerage house, you have protection in the form of FDIC or SIPC insurance. FDIC insurance protects money in bank accounts from a bank failure, while SIPC covers cash and securities held with a stockbroker.
Instead, the money that Celsius customers have deposited on the platform could be treated as a form of loan to the company, which could make it harder to repay. Some investors have banded together to hire lawyers, and many have written letters directly to the court. It’s not clear how much of an impact this will have, but the letters reveal the human side of the Celsius breakdown.
One depositor said he had his father’s pension money invested in Celsius along with his own savings. He hasn’t told his father yet. Another customer struggled with suicidal thoughts. Another said: “This horrible event really damaged my life. I can hardly sleep, I have trouble paying my bills and I can no longer live a normal life.” There are hundreds of letters.
Most writers describe their sense of betrayal. Some accused Celsius of lying and others called it a Ponzi scheme. One said Celsius CEO Alex Mashinky “made people believe that Celsius was a safe and viable alternative to a bank with much better interest rates.” Another investor, a member of the US Air Force, wrote that he had invested his life savings in Celsius. “I’m a long-term owner and investor, not a trader,” he wrote. Little did he know that Celsius was actively trading and taking undisclosed risks with its money.
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How to manage crypto risk
If you’re considering buying crypto or using a crypto platform that pays interest, please take steps to ensure you don’t end up like the 1.7 million Celsius customers who are now struggling with serious losses.
1. Don’t assume a crypto platform is as secure as a bank
As mentioned above, bank accounts are FDIC insured, meaning your savings are protected for up to $250,000 per eligible account. Some crypto exchanges promise that US dollars deposited with them are FDIC insured, but stablecoins or crypto assets are not covered.
Banks and brokerage houses must follow strict rules about what they can do with customer deposits. In contrast, Arkham Intelligence analysis states, “Celsius appears to have managed a significant portion of its wealth more like a hedge fund than a bank, aggressively investing deposits in the crypto markets rather than lending them to sophisticated corporate low-risk institutions .”
2. Read the Terms and Conditions
It’s no fun at all to dig through the legal wording of the terms and conditions. But companies can hide all sorts of things in these documents. In the wild west world of crypto, you could cede your rights. If the worst happens and the crypto platform goes down, those boring documents could mean the difference between holding your money and losing it.
Pay special attention to ownership. In the case of Celsius, customers unwittingly agreed to transfer ownership of their assets to the platform. Other crypto lending platforms have similar clauses. Look for a platform where your wealth is yours.
3. Only invest money you can afford to lose
No type of cryptocurrency or crypto platform is a good place for your life savings. Even if it’s a stablecoin pegged to the US dollar, it’s not the same as a US dollar held in a bank account. Not only can the value of any cryptocurrency fall to zero, crypto platforms can collapse.
It must be repeated: There is no safe crypto investment at the moment. Don’t invest money you can’t afford to lose or borrow money to buy crypto. It’s also good to make sure crypto isn’t the only asset type you’re holding. When crypto sits alongside other assets in your portfolio, including stocks, cash, and real estate, then the failure of a single project isn’t going to throw you off course financially.
bottom line
The stories of Celsius investors are heartbreaking and a reminder that high returns come with high risk. Eventually, there could be more safeguards to protect crypto investors. Until then, crypto platforms are not banks and you could lose everything. Be careful and only trust crypto platforms with a small percentage of your money.
Note: Some citations have been edited slightly for clarity.