Two Bitcoins held in both hands with a Binance price chart opened in the background.

Joel had saved up a six-figure sum in crypto. He is most lost and can’t get the rest out

After five years of flying in and out of mining in Far North Queensland, Joel had almost saved up enough for a down payment on the first house.

Then, about six months ago, the price of bitcoin started a long decline.

Now he’s lost most of his savings – and this week his luck got even worse.

The company that manages its cryptocurrency in exchange for rewards has frozen withdrawals for all of its customers, meaning Joel can’t even access his money.

“Before prices fell, it started to look like a house,” said the 24-year-old electrician.

Joel is one of many Australians whose financial fate will be decided in the coming days, after the price of bitcoin plunged about 30 percent in the past week, boosting confidence and heightening fears of further declines.

The value of bitcoin (AUD) is at an 18-month low.Provided: Google

On popular Australian cryptocurrency Facebook groups, moderators have posted links to counseling hotlines.

“There are a lot of very concerned people out there,” said Luke Torsello, moderator of the 99,000-member Crypto Australia Facebook group.

“Everyone is in damage control right now.”

What causes the fall?

Inflation, says Chris Berg, co-director of RMIT’s Blockchain Innovation Hub.

Central banks around the world raising interest rates to fight inflation have led investors to withdraw from so-called “risky assets,” or assets with a high degree of private volatility.

“Crypto is the ultimate risk agent, so it’s the first to fall,” said Dr. Mountain.

This came as a surprise to some. Cryptocurrencies have been promoted in some quarters as an “anti-inflation hedge”, meaning they would stay in value or increase in value if inflation rose.

That’s not how it went.

“Bitcoin is not an inflation hedge,” said Dr. Mountain.

The combined market value of all cryptocurrencies is now reportedly less than $US1 trillion ($1.43 trillion), or about a third of its November value.

So that’s about $2 trillion ($2.86 billion) that cryptocurrency wiped out in just over half a year.

As the price falls, investors get nervous.

Last month, Terra, which was one of the world’s most valuable and stable digital currencies, crashed in valuecausing it to lose 95 percent of its value in 48 hours and cause a widespread loss of confidence.

A month later, this caused problems for Joel’s cryptocurrency lender Celsius.

Why is Celsius in trouble?

About six months ago, Joel deposited the crypto he had accumulated over the past five years in a crypto savings account of the US-based company Celsius, which was founded in 2017.

Celsius was set up like a bank, but promised much higher interest rates of up to 18 percent a year.

It said it could afford such high rates by making long-term loans and earn even greater returns.

This may have sounded too good to be true, but many people took the opportunity. As of May this year, Celsius had 1.7 million users and nearly $12 billion in assets under management.

Celsius CEO Alex Mashinsky in November 2021
Celcius CEO Alex Mashinsky in November 2021, when bitcoin was soaring.Getty: Piaras Midheach

The business model worked well while the market was strong.

But when Terra crashed spectacularly last month, rumors spread that Celsius would face a liquidity crisis, meaning it wouldn’t have the cash for customers to withdraw their funds.

An old-fashioned bank run ensued: customers rushed to withdraw their money.

At the time, Celsius CEO Alex Mashinsky dismissed the trust collapse as “FUD,” or fear, uncertainty and doubt.

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But the next day, on Monday in Australia, Celsius abruptly announced that it was “stopping all shooting”.

Joel was taken by surprise.

“It’s the bulk of my assets,” he said.

Theo, a 32-year-old from Sydney who works in logistics and freight forwarding, has most of his savings locked up in Celsius.

“It kind of feels like my money is being held hostage,” he said.

He was also saving for a down payment on the first house and an engagement ring.

What happens now?

It’s not clear what will happen to Celsius, what the company plans to do to remedy the situation, or whether customers will get their money back.

The company’s CEO, Alex Mashinsky, broke a three-day silence on Thursday.

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What happens next depends in part on several unknowns, including where Celsius invested its customers’ money and how much money it had previously set aside to be available for customer withdrawals.

We don’t know these things because while it is like a bank, Celsius is not regulated as a bank, which must have a certain amount of capitalization (ie money set aside for customer withdrawals).

“We don’t know the position of Celsius,” said Dr. Mountain.

“We don’t know if it went bankrupt and maybe it hasn’t – there are all kinds of rumors going around.”

Now the regulators are getting closer. State security agencies in four US states have reportedly launched probes in Celsius.

Pushed to crypto by inflation and unaffordable housing

On pages like Crypto Australia, a common refrain in Celsius news was “Not your keys, not your coins”, meaning those who apparently lost money shouldn’t have stored their coins with a centralized exchange or company that could be hacked. , or otherwise go under.

In 2014, hackers stole more than $660 million ($945 million) in money from users of the world’s largest exchange, Mt Gox.

“I’m from the Mt Gox era, so I learned my lesson, ‘Not your keys, not your crypto,'” said Luke Torsello of Crypto Australia.

Newer members learned it first, Torsello said.

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