What happens if a crypto lender freezes withdrawals?

When a crypto lender freezes withdrawals, your deposits are locked on the platform and you cannot move or sell them. If the lender then files for bankruptcy, a court decides how the remaining assets are split, and that process often takes years. How much you recover depends heavily on the terms you agreed to when you opened the account.

What happened when Celsius withdrawals were frozen?

Celsius paused all withdrawals, swaps and transfers on June 12, 2022, citing extreme market conditions. It filed for Chapter 11 bankruptcy in July 2022.

The US Federal Trade Commission later alleged that Celsius had misused more than $4 billion in customer deposits, falsely told users they could withdraw at any time, and claimed a deposit insurance policy it did not have. In July 2023 Celsius agreed to a $4.7 billion judgment, which was suspended so its remaining assets could go back to customers through the bankruptcy.

Who owns crypto deposited with a lender?

This is often the key question, and the answer comes from the account terms. In January 2023, Judge Martin Glenn ruled that about $4.2 billion in Celsius Earn accounts belonged to Celsius, not its users. He found the terms of use transferred ownership of the crypto to the company. That made Earn customers unsecured creditors who had to share what was left.

BlockFi showed how account type can matter. It froze transfers in November 2022 and filed for bankruptcy on November 28. A judge later allowed it to return nearly $300 million to customers with non-interest custodial wallets, while assets in its interest-bearing accounts were treated differently. For background on how these products work, see crypto lending and borrowing.

How do you get money back after a crypto lender bankruptcy?

There is no quick route. In general, customers file a claim in the bankruptcy case, wait for a repayment plan to be approved, then receive a distribution.

Celsius emerged from bankruptcy in November 2023 and began paying creditors on January 31, 2024. By August 2024 it had distributed more than $2.5 billion in crypto and cash to about 251,000 creditors, through partners such as PayPal and Coinbase. Claim values were based on crypto prices on January 16, 2024, not the day of the freeze.

How is this different from an exchange going bankrupt?

The process is similar, and our guide on what happens if a crypto exchange goes bankrupt covers it in more detail. The main difference is that lenders actively lend out or invest deposits to pay yield, so their terms often give them ownership of your coins.

Crypto held with a lender is generally not protected like a bank deposit. Read more in is crypto insured and custodial vs non-custodial wallets.

Rules differ by country and change often. Check the relevant regulator or a qualified professional for your own situation.