• Crypto downturn, Terra/LUNA crash and 3AC bankruptcy weigh on Celsius
• Celsius Files for Chapter 11 Bankruptcy Protection – Bankruptcy Proceedings Begin
• Subsidiary Celsius-Mining is to help compensate for losses
Crypto Bloodbath Puts Celsius Into Liquidity Problems
Celsius is one of the lenders hit hard by the Terra/LUNA crash, the bankruptcy of Three Arrows Capital and the ongoing cryptocurrency market downturn. The liquidity crisis became known in mid-June when the company wrote in a blog post that “extreme market conditions” caused it to pause all payouts, swaps and inter-account transfers. “We are taking this action today to better enable Celsius to meet its redemption obligations over time,” the crypto lending service said at the time.
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In July, however, the crypto debacle claimed its victim: Celsius announced on July 13 that the company had officially filed for Chapter 11 bankruptcy protection in the Bankruptcy Court of the Southern District of New York. “This is the right decision for our community and our company,” CEO and co-founder Alex Mashinsky was quoted as saying in the official announcement. “We have a strong and experienced team to guide Celsius through this process. I am confident that as we look back at Celsius’ history, we will see this as a pivotal moment to act with determination and confidence served the community and strengthened the future of the company.”
Bankruptcy proceedings have started
The bankruptcy proceedings have now begun. The crypto lending service has accumulated more than $5 billion in debt to 500,000 creditors, CoinDesk reports, citing testimony from Celsius’ lawyers during an initial bankruptcy hearing. Court records also painted a worrying picture. The company has a huge hole of at least 1.2 billion US dollars in its balance sheet. This is not good news for retail investors who have been holding their cryptos in Celsius accounts, as they may be the last to get their money back. As part of the Chapter 11 bankruptcy, also known as a “reorganization bankruptcy,” all attempts by creditors to pursue civil actions would now be halted to give the company time to preserve its finances to repay its debts.
Documents filed with the Southern District by law firm Kirkland & Ellis show that Celsius is deeply insolvent, according to CoinDesk. The company’s digital assets shrank to $1.7 billion on July 14 from $14.6 billion at the end of March. While Celsius does have $170 million in cash in a bank, the rest of the wealth is tied up in mining equipment, outstanding loans and other assets.
Celsius, CoinDesk reports, has admitted that it lost about $15.8 million due to the collapse of Terra. According to one of the company’s legal advisors during the hearing, the “widespread and completely misleading Twitter and social media commentary” is to blame for the rush for the deposits.
Mining subsidiary to help out
Now the question arises as to how Celsius is to get out of the mess. According to CoinDesk, the initial hearing and a host of court documents, including a statement from Celsius CEO Alex Mashinsky, suggest that Celsius’ plan to recoup its losses will depend in large part on projected future profits from its uncompleted mining operations. Subsidiary Celsius Mining – which is also a debtor – depends. Lawyers for the crypto lending service are said to have asked the court to authorize spending over $5 million to complete the construction of the Texas mining center and pay tariffs on mining assets. Judge Martin Glenn, Chief Justice of the US Bankruptcy Court in the Southern District of New York, provisionally granted the request, but ultimately the US Trustee has financial control.
Shara Cornell, an attorney for the US Trustee Program, expressed concerns about the viability of Celsius’ mining operations at the hearing, according to CoinDesk: “There is one mining company that I believe is not currently operational, but put a significant amount of money in the debtor’s coffers. I’m not sure if construction is the best course of action for the debtor at this time or not,” Cornell said. “Why don’t you just consider liquidating it and moving on?”
However, according to CoinDesk, the crypto lending service’s lawyers pointed out that Celsius’ operations already include more than 43,000 mining rigs, with plans to reach 112,000 mining rigs “sometime in the second quarter of 2023.” Celsius lead attorney Pat Nash told the court that the mining subsidiary mines about 14.2 bitcoins per day and is expected to mine 10,100 bitcoins in 2022. But even if Celsius were to do so, at current market prices it would only fetch a fraction of what it takes to make Celsius solvent.
Editorial office finanzen.net
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