Cryptocurrency lender Celsius Network was advertising yields of 17 per cent right up to mid-June when it froze withdrawals and then filed for bankruptcy in New York one month later.
Marketing itself much like a bank but without the same regulations, it attracted a global customer base — including Australians — many of whom had their assets locked up as cryptocurrency prices collapsed and the company ran aground.
The plight of these retail investors was spotlighted in recent weeks by software engineer and frequent cryptocurrency critic Molly White, who began to tweet moving excerpts from hundreds of letters sent to the New York bankruptcy court and shared in court exhibits.
"The stereotype of people who are putting money into crypto is … young, technologically savvy men," Ms White told the ABC.
"And that did not seem to be the demographic in the letters.
"There were also a lot of people who were saying, 'this is my life savings, my pension, I worked 10, 20, 30 years to save this money.'"
Ms White also shared letters from people who said they were based in Australia, many of whom described their utter desperation and even thoughts of suicide after they were blocked from accessing funds.
One woman said the impact on her family had been severe. She included an email she sent to Celsius management begging to be allowed to withdraw some of her funds. The email included an ultrasound picture of her unborn child.
Others wrote of their emotional turmoil:
"I have lost everything. How can I explain this to my son? I feel ashamed at myself."
"That was our life savings. It was our chance of having a baby, and funding medical expenses. It was our chance of taking care of our parents as they age."
A father of three in Australia wrote he had "his life savings in a Celsius earn account", and that he'd also convinced his father to deposit cryptocurrency assets into Celsius as a "safe haven".
As well as putting a personal face to the cryptocurrency crash, many of the letters cite the online presence of Celsius chief executive Alex Mashinsky as a key reason for investing.
They bring up his regular YouTube AMA or "ask me anything" sessions, in which he projected supreme confidence until the end, and a willingness to call out what he saw as "misinformation" about his company on Twitter.
Ms White was also struck by how many letters specifically cited Mr Mashinsky, and his online persona.
"Those [AMA sessions] clearly worked really well to build trust in him and in the platform," she said.
"And people basically believed that Alex Mashinsky as a person would not do this to them."
'We're at the bottom, and we're trying to be loud'
Claire* is one of the Australians with assets locked up in Celsius who wrote to the judge.
She returned to Australia in 2020 after more than a decade living in the United States, and was after a career change. A university course in financial technology introduced her to cryptocurrencies, and she took a shine to the industry.
But Claire said she struggled to find a job in the field and when trying to start her own businesses, found that Australian banks wouldn't lend to her due to a lack of local credit history.
A US cousin introduced her to bitcoin mining, and she ended up locking away around $US50,000 worth of bitcoin as collateral for a loan from Celsius.
"I was very attracted to their loan facility, because I couldn't get a loan here for anything," she said.
"Cryptocurrency for a person who is in that situation is … more attractive."
While she is not in as dire a situation as some other Celsius customers, Claire said the goal of writing her letter was to ensure the voices of smaller investors were heard as the company's debts are considered.
It's still unclear how the process will play out.
Celsius's terms and conditions warn that an account with the company is "not a checking or savings account, and it is not covered by insurance against losses" and that "any Eligible Digital Assets ... may not be recoverable" after bankruptcy.
"The big guys will get the lawyers and they will be loud," she said.
"We're at the bottom, and we're trying to be loud."
Risk not over for Australian investors
Celsius had approximately 300,000 active users with balances of more than $US100 ($144) as of July 2022, and a $US1.2 billion shortfall when it filed for Chapter 11 bankruptcy in the Southern District of New York.
The company offered a number of services, including the ability to borrow against cryptocurrency assets transferred to the company, or to earn high reward rates on these deposits.
But while its team presented a glossy picture of huge yields, it seemed impossible to some critics that such numbers could be sustained without making potentially hazardous investment choices with the funds of its international depositors.
Campbell Harvey, a professor of finance at Duke University, said the Celsius situation was ultimately simple: "This is a company that basically took customer deposits, if you want to call them that, and then invested in very risky products."
Among other issues, Dr Harvey said, Celsius appears to have invested in cryptocurrency products that were highly illiquid when the company needed money back quickly.
"Any time you're promised an 18 per cent return that is sold as risk free, that is just a red flag," he said.
Celsius's bankruptcy filing continues a rough period for cryptocurrencies, and other high-profile platforms including Babel Finance, Vauld and Voyager have run into trouble in recent weeks.
Celsius's own bankruptcy documents admit it made "what, in hindsight, proved to be certain poor asset deployment decisions".
Mr Mashinsky's declaration also cites the high-profile "implosion" of cryptocurrency Luna and its TerraUSD stablecoin as accelerating the onset of a "crypto winter" and prompting an uptick in customers trying to get their money out — akin to a bank run.
The Celsius situation also makes the risks clear for Australian cryptocurrency investors: overseas companies are subject to overseas rules.
Aaron Lane, a lawyer and senior research fellow in the RMIT Blockchain Innovation Hub, said how much local investors ultimately recovered from Celsius was now in the hands of US courts, where cryptocurrency bankruptcies were a relatively new phenomenon.
"That's something that consumers need to consider at the front end … doing your research and really considering who controls the cryptocurrency that you're putting in," he said.
Both Dr Lane and Dr Harvey suggested Celsius's situation, as well as the litany of other cryptocurrency collapses, was likely to spur government regulation of the industry.
This may include whether cryptocurrency lenders like Celsius will be forced in future to abide by rules set for more traditional financial institutions, such as capital requirements to protect depositors.
"How can consumers know that if they're putting money into one of these platforms that they can get it back, or at least get a proportion back?" Dr Lane said.
Ms White says there's a pattern in how cryptocurrency projects are allowed to operate that can't continue.
"Crypto projects do whatever they want, advertise however they want, run their businesses with basically no transparency and no requirements for how they're handling their assets, and then [regulators] just wait for them to explode," she said.
"We can't afford to have done it as long as we have. People are continuing to get hurt."
*Name has been changed for privacy.
