Celsius Withdrawals Stay Blocked for 5th Day as Clients Fear Losing All Funds

After suddenly halting withdrawals on Sunday, Celsius Network has kept funds on hold for the fifth day now. This has forced some users, who are forced into “HODL mode” indefinitely, to consider a class-action lawsuit against the crypto lender. 

Additionally, amid reports of Celsius Network hiring insolvency experts, customers’ funds might actually not be safe at all.

Celcius Suspended Withdrawals Citing Extreme Market Conditions

On Sunday, Celsius revealed that it has paused withdrawals, swaps, and transfers between accounts due to “extreme” market conditions. “We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” the company said at the time. 

The move came following a brutal market crash that saw the value of major cryptocurrencies plunging. The market crash was largely attributed to the hotter-than-expected inflation report, which revealed that the CPI hit 8.6% in May, beating the 8.3% estimate. 

The suspension of withdrawals at Celsius further exacerbated market confidence, with some arguing that the crypto lender could be suffering from liquidity issues. Since Celsius is also the largest holder of stETH, the token’s depegging would make it more difficult for the crypto lender to honor withdrawal requests.

Users Consider Class Action Lawsuit Against Celsius

Since suspending withdrawals, Celsius has not updated users on when it might lift the ban. This has forced some users, who are facing liquidations of their trading positions as the crypto market crashes, to file a class-action lawsuit against the crypto lender.

Popular crypto YouTuber Ben Armstrong, better known as BitBoy, is one of the proponents of the class-action lawsuit. “Today we will begin the process of bringing a Class Action Lawsuit against Celsius Network and Alex Mashinsky,” tweeted BitBoy, who has 1.45 million subscribers on YouTube. 

BitBoy said he decided to file the lawsuit after finding out that he has enough money in his account to pay off a loan, but he cannot access them since swaps and transfers have also been paused. Instead, his only option is to deposit more funds to pay off the loan. He added:

“Imagine an insolvent company that you can’t withdraw your money from ASKING YOU TO SEND THEM MORE MONEY. Literally defies logic. So you may be asking yourself the question, “why would they not let you pay off the loan with money/crypto/stables that are already in your account?””

BitBoy is not the only user with such issues. A number of other users have also claimed that, despite having sufficient capital to add a margin, they are facing liquidations of their trading positions as prices tumble because transfers are suspended. One Celsius user said:

“I have USDC in my account that I want to use to repay my loan that has a margin call right now, but I can’t even repay the damn loan because of the transfer freeze. That’s ridiculous. If the market tanks, [C]elsius will liquidate my collateral even though I can pay off my loan!!!”

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Can the Class-Action Lawsuit Succeed?

The filed class-action lawsuit questions whether it is legal for an institution to freeze funds without prior notice. According to Ana Ojeda, a Venezuelan lawyer specializing in blockchain technology, while the lawsuit makes sense, it is unlikely to succeed. She said:

“Indeed, the collective complaint would make a lot of sense right now, but it would be difficult to apply and execute due to the current circumstance of Celsius, where it cannot be described that they are truly bankrupt because they have not initiated this procedure.”

It is worth noting that since Celsius is not a bank, users might not be able to recover their crypto used in the “Earn” service or as collateral, according to the company’s terms of use. Moreover, Celsius users “will not be able to exercise rights of ownership,” have no claim to any compensation Celsius gets for lending out those assets, and if it goes bankrupt, “may not be able to recover or regain ownership of such Digital Assets.”

Meanwhile, the turmoil around Celcius and Three Arrows Capital, which comes less than a month after the catastrophic failure of the Terra ecosystem, might once again lead to lawmakers moving to bring regulatory oversight to the crypto market.

Do you think Celsius has gone bust? Let us know in the comments below.