The crypto industry claims to want to democratize traditional finance. The sector wants to be inclusive by developing financial services for everyone regardless of social origin, ethnicity and geographic location. The goal: to reach as many people as possible and especially small investors.
This promise took a hit after prominent crypto lenders, including Voyager Digital and Celsius Network, last month filed for Chapter 11 bankruptcy protection because of a liquidity crunch caused by the cryptocurrency-market crash and the liquidation of hedge fund Three Arrows Capital.
A number of crypto lenders, which operate like traditional banks and are also platforms where you can buy and sell coins like bitcoin, have suspended withdrawals. This means that their customers could no longer access their money.
And things didn't get better for their customers after these platforms filed under the bankruptcy laws. According to official documents from Voyager Digital, retail investors' claims are considered unsecured, which means they are not certain to ever get their money back.
'You May Not Have Any Legal Remedies or Rights'
An almost similar language sits at Celsius Network:
"In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any eligible digital assets used in the earn service or as collateral under the borrow service may not be recoverable, and you may not have any legal remedies or rights in connection with Celsius’ obligations to you other than your rights as a creditor of Celsius under any applicable laws," the platform said in its terms and conditions.
"The funds in my Celsius custodial account are not mine, they are the US Governments and I my entire business is secured and backed by these funds. If they are not returned, my business would go bankrupt, my 15 employees would be let go, and 14 years of my life’s work lost," a customer wrote to the judge in the Celsius bankruptcy case, according to excerpts first published online by a wikipedia editor.
"And at the age of 49 years old, I would have to start over with nothing. The thought of losing this money has left me depressed, suicidal, and without words. Please return our money."
According to official documents, the Celsius bankruptcy could cause its private clients -- depositors and custodial clients -- to lose nearly $5 billion. They could lose at least 70% of this money because the crypto sector is not backed by the Federal Deposit Insurance Corp. Crypto is not legal tender and thus far has only basic rules outlining what may or may not protect its value.
The Return of WallStreetbets
The resistance did not take long to organize itself. Like the early 2021 revolt that rocked the stock market with the infamous GameStop (GME) - Get Free Report short squeeze, which the videogame retailer's shares to the stratosphere, a movement to recover some of Voyager's and Celsius's customer money recently broke out on the social-media platform Reddit.
These Reddit traders, like Reddit WallStreetbets, are using much the same tool -- the community -- that was deployed a little over a year ago to push around the finance barons.
They copy the grassroots-movement technique of using collective action to force Celsius and Voyager to take care of their retail creditors.
They have thus set up discussion channels on Reddit and Telegram, where they exchange and dissect the firms' financial documents. And they organize forums on social media.
"I don't understand why [Alex] Mashinsky is not in jail. Is the US a joke? This is literally a scam, it's not a company going bankrupt," complained one Reddit user on the forums dedicated to the bankruptcy of Celsius.
Mashinsky is Celsius's chief executive.
On the r/celsiusinsolvency channel on Reddit, users are calling on Celsius customers to pressure regulators to open an investigation into the lender. All the research and documentation work has been done. Users just have to click on the links provided to them to write their complaints.
"Together, we can hold Alex [Mashinsky] accountable, and fight for a better outcome for smaller investors in particular, who were lied to and misled," said the main post.
Pressure on the SEC
The channels also promote communities on Telegram and Twitter where aggrieved customers can find help, organize and brainstorm ideas. The Celsius Non-Accredited Earn Discount group account on Telegram at last check had more than 1,800 members.
One of the dominant ideas here is to pressure the U.S Securities and Exchange Commission to probe Celsius.
"We need both a positive message 'please helps' amd maybe 'appoint a receiver to mazimize our recovery' and a negatie one 'fines hurt us, and retail needs your help' but it's gone beyond the point of remain silent," suggests a member under the name "MannyMane" on Aug 22..
"If SEC gets involved they could appoint a receiver whose job it is to go after the assets, collect them and then distribute to the victims," responds another member. "A receiver can also go after third parties who were unjustly enriched."
"It's seeming like this is not only the better option but the only one," adds a member. "At this point I think we need to make them aware that we know they CAN do this so the pressure on to do it."
On Twitter, "spaces", or Q&A, with the prominent bankruptcy-law attorney Thomas Braziel are organized and very followed.
"Voyager and Celsius - I love all of the grassroots creditor activity - for me its great to see - its like WSBs has come to Bk - Telegram channels / Reddit / Twitter Spaces - its amazing to see," Braziel recently tweeted, referring to the Reddit channel WallStreetBets.