Embattled Crypto Lender ‘Celsius’ Files For Bankruptcy

In what some have described as crypto’s “Lehman moment”, troubled lender Celsius has officially filed for “financial restructuring” under Chapter 11 of the US Bankruptcy Code. 

Moments ago, @CelsiusNetwork filed voluntary petitions for Chapter 11 protection and announced that the company initiated a financial restructuring. https://t.co/vf5wsT6TMp

— Celsius (@CelsiusNetwork) July 14, 2022

Controversy Reigns

To many in the industry, Celsius has remained one of the more controversial businesses, with many citing its yield as unsustainable.

These claims go as far back as 2019, reflected in a “discussion” where the company’s founder Alex Mashinsky clashed with Bitcoiners Tone Vays and Saifedean Ammous regarding the company’s business model:

In many ways, the writing was on the wall as warning bells flashed in April as Celsius paused interest accounts for users. Later in June, the company halted user withdrawals, but only after sending US$320 million to crypto exchange FTX.

As crypto broker Voyager filed for bankruptcy, in addition to crypto lender Vauld freezing withdrawals, many felt that it would be a matter of time before Celsius caved.

At the current pace, given that they can essentially leverage their entire asset base (of customer assets), Celsius will have paid off all the Defi loans by the end of this week. The bankruptcy filing should occur shortly thereafter.

— Mike Alfred (@mikealfred) July 11, 2022

Nail in the coffin

Late on July 13, Celsius finally confirmed it was initiating voluntary Chapter 11 proceedings to “stabilise its business and consummate a comprehensive restructuring transaction that maximises value for all stakeholders”.

Continuing, the board of directors said:

Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps, and transfers on its platform to stabilize its business and protect its customers. Without a pause, the acceleration of withdrawals would have allowed certain customers—those who were first to act—to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.

Celsius board of directors’ statement

Interestingly, as Swan Bitcoin founder Cory Klippsten commented, it would appear as if beleaguered users are at the back of the queue when it comes to Celsius’ stakeholders:

If @celsiusnetwork and @investvoyager cared about their users they'd file for SIPA bankruptcy as brokers (which they always claimed to be), where ALL proceeds go to customers first.

Filing for Chapter 11 is them saying EXPLICITLY that THE COMPANY OWNS ALL USER ASSETS. pic.twitter.com/FMDzmjRBZO

— Cory Klippsten 🦢 #Bitcoin is moral tender (@coryklippsten) July 14, 2022

While the company apparently has some US$167 million in cash, it noted that initial approval would be sought to allow payment to employees, but that it would “not be requesting authority to allow customer withdrawals at this time”.

While the announcement is not likely to be welcome news to users whose funds remained frozen, it does offer vindication for those who saw it in advance and managed to persuade users to jump ship:

If you attacked me for calling out Celsius repeatedly over the last 13 months and predicting a Chapter 11 bankruptcy filing, I do not want an apology. Please make a donation to a charity, preferably one that benefits dogs, cats, or orphans. Thanks in advance.

— Mike Alfred (@mikealfred) July 14, 2022