How one Hoboken company got caught up in the crypto collapse

The memo was billed as a “very important message” and posted on Celsius Holding’s blog. “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts,” the June 12 post read. “We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.”

The memo, which came amid a wider collapse of the cryptocurrency market, created uncertainty for Celsius’ roughly 500,000 users who have as much as $8 billion in deposits frozen. It also marked a dramatic and swift fall from grace for a company managing $11.8 billion in assets as of May 17, while being revered in the crypto world.

Charismatic CEO Alex Mashinsky built the company around his mission of “unbanking,” in which investors could deposit cryptocurrency outside of the traditional systems, absent bureaucratic costs and the profit-taking of those banks. As a result, Mashinsky said Celsius could offer much higher yields to depositors, sometimes reaching between 20% and 30%.

Driving the message home during his often-viral social media sessions, Mashinsky typically wore a shirt that read, “Banks are not your friends.” Combined with the rise of crypto and day-trading that grew out of the pandemic, Celsius exploded with billions in deposits flowing into its coffers. Investors were especially enticed by being able to access a weekly return on their Bitcoin without having to sell it.

And as Bitcoin and other tokens, such as Celsius’ CEL token, reached record levels through the pandemic, Celsius grew substantially. During 2021, the company hired hundreds of people before moving its headquarters to Hoboken this past February.

But before the recent crypto meltdown culminating in the transactions pause by Celsius, there were warning signs in September when New Jersey regulators ordered a pause of their own.  The New Jersey Bureau of Securities  issued a Cease-and-Desist Order against Celsius, prohibiting deposits from Garden State investors. The order alleged Celsius funded operations “through the sale of unregistered securities in violation of the New Jersey Securities Law.”

“Financial companies operating in the cryptocurrency marketplace are on notice,” said then-acting Attorney General Andrew Bruck. “If you sell securities in New Jersey, you need to comply with New Jersey’s investor-protection laws. Companies dealing in cryptocurrencies are not immune from oversight.”

The order also stated: “Celsius and similar companies are not regulated by New Jersey or the federal government like traditional banks and brokerage firms, and investors’ losses are not insured against or protected by the Securities Investor Protection Corp. or the Federal Deposit Insurance Corp. Further, due to the volatility of the cryptocurrency market and the lack of regulatory oversight, these platforms present a heightened risk of loss to investors.”

“We are committed to educate and protect investors from companies that attempt to bypass our laws,” said Bureau Chief Christopher Gerold. “The Bureau’s action is intended to protect the public and put on notice those trying to circumvent regulated activities.”

Alabama and Texas would join New Jersey in blocking Celsius from accepting depositor accounts in their state. Celsius had denied that claim.

During boom times, an extended period for crypto, the business model of Celsius worked smoothly. However, a market crash or long slump, which crypto faced this year, would drive down the value of Celsius’ holdings as people tried to get their money out.

That dynamic led to the June 12 memo that roiled the crypto markets even further.

“We have activated a clause in our Terms of Use that will allow for this process to take place. Celsius has valuable assets and we are working diligently to meet our obligations,” the memo said. “We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets. Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers. … We understand that this news is difficult, but we believe that our decision … is the most responsible action we can’t take to protect our community,” the memo read.

But the attempt to calm customer nerves and reiterate the efforts to protect their assets was not well received. In fact, the memo just created more anxiety, rumors and uncertainty for customers about the fate of the company and their frozen assets.

The Wall Street Journal reported days later that Celsius hired Akin Gump Strauss Hauer & Feld LLP to advise on possible solutions for its mounting financial problems.

As the rumor mill and conspiracy theories swirled, Reuters reported that state securities regulators in New Jersey, Alabama, Texas, Kentucky and Washington were investigating the decision to suspend all customer redemptions.

On June 14, Celsius posted an FAQ blog entry. “The Celsius team is working around the clock to respond to customers’ questions. In the interest of keeping the community informed, we will continue to update this FAQ as and when it becomes appropriate.” However, the FAQ was light on specifics and mostly a repurposing of the contents from the June 12 memo.

Then came another note on June 19 to the Celsius community asking for more time, adding to customer uncertainty. “It has been one week since we paused withdrawals, Swap, and transfers. We want our community to know that our objective continues to be stabilizing our liquidity and operations. This process will take time,” the note read. “As has been a priority since our company’s inception, we maintain an open dialogue with regulators and officials. We plan to continue working with regulators and officials regarding this pause and our company’s determination to find a resolution.”

The note also stated that Celsius was pausing Twitter Spaces and AMAs “to focus on navigating these unprecedented challenges and seeking to fulfill our responsibilities to our community.”

Mashinsky held regular “Ask Mashinsky Anything” sessions and posted frequently on Twitter and YouTube, which helped strengthen his connection to customers and burnish his reputation among admirers. The cutoff of that communication, combined with the transactions pause, left customers even further in the dark. Mashinsky has been virtually silent since the June 12 pause, only tweeting once since then.

“@CelsiusNetwork team is working non-stop. We’re focused on your concerns and thankful to have heard from so many. To see you come together is a clear sign our community is the strongest in the world. This is a difficult moment; your patience and support mean the world to us,” Mashinsky tweeted on June 15.

@CelsiusNetwork team is working non-stop. We’re focused on your concerns and thankful to have heard from so many. To see you come together is a clear sign our community is the strongest in the world. This is a difficult moment; your patience and support mean the world to us.

— Alex Mashinsky (@Mashinsky) June 15, 2022

The responses to that tweet featured a mix of anger, anxiety and exasperation with people demanding and pleading that Celsius fix things and make them whole.

“I have all my savings in Celsius because I trust your company, especially after meeting you in Miami,” Jean Hernandez (@Jmhfl7) tweeted. “No one cares about the APY earnings at this point, we care about keeping our crypto safe. Please pull through.”

“Alex, please make this right. I have people on my channel talking about losing life savings, not being able to afford life expenses and some even talking suicide. Whatever your team is doing, let the public know so at least there is some communication. Your tweet is hollow,” wrote Digital Asset News (@NewsAsset) on Twitter.

Meanwhile, the June 19 note closed with more vague assurances without much detail or any answers. “Acting in the interest of our community remains our priority and we will continue to work around the clock. We are grateful for your continued support.”

A request for comment drew an automated response from Celsius, which said the company was “working to respond to the many inquiries we receive as quickly as possible.” That note also included a link to the Celsius blog, which at the moment is the only place to find any answers as customers brace for what’s next.