They lost crypto in the crash, now they’re trying to get it back
NEW YORK (NYTIMES) – David Little was starting to lose hope. Like thousands of other investors, he had lost a large chunk of his cryptocurrency savings – a sum that once accounted for more than half his net worth – when crypto lender Celsius Network filed for bankruptcy in July.
Then he had an idea. Mr Little, a 35-year-old engineer in Houston, wrote a letter to the United States Bankruptcy Court for the Southern District of New York, arguing that he and others who had deposited their digital currencies in a special type of Celsius account should be able to withdraw the funds. Soon, he started getting calls from fellow depositors – a man who was struggling to pay rent, a woman who had lost her retirement savings.
Mr Little started a group chat that grew to include hundreds of Celsius customers. Within days, they raised US$100,000 (S$138,700) to hire a law firm to press their case in court.
“If I do become part of the cautionary tale in crypto, I will know I did not just sit by and do nothing,” Mr Little said.
The company’s implosion was one of the most damaging episodes of this year’s crypto crash, a moment of reckoning that exposed the industry’s risky practices and ruined thousands of investors. Celsius customers alone lost US$5 billion, and the firm’s collapse sent tremors across the crypto market, tanking the price of Bitcoin and Ether.
Now, the crash has entered a crucial new phase: a frenzied rush to recover lost funds. The effort stretches beyond Celsius as the amateur traders who bet on a range of failed crypto projects seek compensation, file lawsuits and mobilise online. At the same time, some of the industry’s most powerful firms are examining what is left of the distressed companies in a hunt for potential deals.
The stakes are highest for the ordinary investors who lost everything. Celsius depositors are scrambling to salvage even a portion of their savings, congregating in online forums to debate legal strategy and offer emotional support. For weeks, they have flooded the bankruptcy court with hundreds of impassioned letters detailing their losses and proposing ideas to maximise recoveries. Apart from Mr Little’s group, at least one other customer coalition has hired a lawyer to recover a share of Celsius’ remaining assets, an unusual show of grassroots activism for a bankruptcy case.
The recovery efforts have gained steam as the crypto market has gradually stabilised. The price of Bitcoin rose to about US$25,000 this week from a low of US$18,000 in June, although it remains more than 60 per cent off its peak of roughly US$68,000 in November.
Whether the grassroots organising and backroom dealmaking will lead to substantial payouts for people who lost money remains uncertain. The Celsius case is complex, and historically, investors who have lost cryptocurrencies in a corporate collapse have struggled to get them back. The 2014 bankruptcy of Mt Gox, an early exchange, cost investors billions and led to years of legal wrangling.
Customers hope the company’s bankruptcy will be less drawn out. For years, Mr Alex Mashinsky, the crypto bank’s founder, trumpeted an opportunity that seemed too good to pass up: savings accounts where people could deposit cryptocurrencies and receive annual yields as high as 18 per cent. In weekly “ask me anything” videos, he cast Celsius as a populist alternative to traditional banks, which have federally insured deposits that pay much less interest.
To generate its 18 per cent returns, Celsius took risks, investing customer deposits in experimental crypto products, according to court papers. In June, the market crash set off the equivalent of a bank run, forcing Celsius to halt withdrawals and eventually file for bankruptcy.
source https://eastmud.com/latest-news/they-lost-crypto-in-the-crash-now-theyre-trying-to-get-it-back/