Celsius Is Hoping for a Bull Market to Repay Customers

Key Takeaways

  • Celsius has revealed that it plans to reorganize and continue operating rather than face liquidation.
  • The insolvent crypto lender said it will allow customers to withdraw cash at a discount or remain long crypto and wait for another potential bull market.
  • The hearing also revealed a $1.19 billion hole in Celsius’ balance sheet.

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During a late Monday bankruptcy hearing, Celsius’ lawyer Patrick Nash told the judge that “all is not lost,” as the firm is aims for a reorganization rather than a liquidation.

Celsius Begins Reorganization

During its first Chapter 11 bankruptcy hearing late Monday, Celsius revealed a $1.19 billion hole in its balance sheet, and customer liabilities amounting to $4.72 billion.

The beleaguered crypto lender with over 1.7 million users filed for bankruptcy on July 13, precisely a month after it halted customer withdrawals due to alleged “extreme market conditions.” In the U.S., Chapter 11 is a form of bankruptcy involving reorganizing a debtor’s business affairs, where the debtor is allowed to continue operating while the business is restructured. 

Underscoring this point during the first bankruptcy hearing, Celsius’s lawyer Patrick Nash said that the lender still plans to land on its feet. “This is not a liquidation. All is not lost. We intend for this be a reorganization,” he said.

In a slide presentation published on Celsius’ bankruptcy website, the firm also noted a $1.19 billion hole in its balance sheet. Namely, as of July 14, Celsius had $5.5 billion in total liabilities—$4.72 billion of which owed to its customers—while having only $4.31 billion in assets. To make customers whole, Celsius allegedly plans to provide them with the option to either recover “cash at a discount” or “remain ‘long’ crypto.”

“The vast majority of our customers are going to be interested in riding out this crypto winter, remaining long crypto,” Nash said during the hearing, adding that users should have the opportunity to recover their assets in full “through an appreciation in the crypto macro environment.” This effectively means that Celsius is hoping for a bull market to grow its total assets’ nominal value, enabling it to potentially repay its customers in full.

According to Celsius’ terms of use, the customers of its “Earn” and “Borrow” programs lawfully transferred the ownership of their coins to the lender when depositing, giving it the full right to “to use, sell, pledge, and rehypothecate those coins.” This means that Celsius depositors could be treated as unsecured creditors in the event of insolvency and potential liquidation.

In a statement part of the bankruptcy filing, Celsius CEO Alex Mashinsky admitted that the firm had made investment decisions that, in retrospect, proved to be detrimental. “The amount of digital assets on the Company’s platform grew faster than the Company was prepared to deploy. As a result, the Company made what, in hindsight, proved to be certain poor asset deployment decisions,” he said.

Disclosure: At the time of writing, the author if this piece owned ETH and several other cryptocurrencies.

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