The Celsius Network is one of many crypto lending firms that have been swept up in the wake of the so-called “crypto contagion.”
Rumors of Celsius bankruptcy began circulating in June after the crypto lender was forced to halt payouts on June 13 due to “extreme market conditions” and eventually filed for Chapter 11 bankruptcy a month later on July 13.
The crypto lending company had a $1.2 billion balance shortfall in its bankruptcy filing, with most of its liabilities owed to its users. User deposits accounted for the majority of liabilities at $4.72 billion, while Celsius CEL token assets were $600 million, mining assets were $720 million, and 1.75 billions of dollars in crypto assets. However, the value of the CEL tokens has raised suspicions among some in the crypto community, as the total market cap for CEL is just $494 million, according to CoinGecko data.
Iakov Levin, CEO of centralized and decentralized finance platform Midas, told Cointelegraph that the CEL token value issuance could affect its holders. He explained:
“Celsius priced the CEL token, which is valued at $1 per token, and requires someone willing to pay that price for the bankrupt token. The situation is dark not only for Celsius users but also for CEL token holders. CEL has become a sad example of how some events can have a domino effect and the broader digital asset market can suffer.”
At the time of filing for bankruptcy, the company had said it intended to use $167 million in cash to continue certain operations during the restructuring process, and eventually “restored activity across the platform” and “returned value.” . Customers.”
A new bankruptcy report, filed almost a month after its Chapter 11 bankruptcy filing, showed that the crypto lender’s actual debt is more than double the company’s in July. The report revealed that the company has net debt of $6.6 billion and total assets under management of $3.8 billion. During the bankruptcy filing, the company reported assets of approximately $4.3 billion against liabilities of $5.5 billion, a difference of $1.2 billion.
Pablo Bonjour, chief executive of Macco Restructuring Group, which has worked with several crypto firms in bankruptcy proceedings, explained why Celsius’ balance sheet gap has widened and what lies ahead for the troubled crypto lender. He told Cointelegraph:
“Celsius is really no different than most Chapter 11 bankruptcies, as the debt or shortfall hole, if you will, sometimes turns out to be larger than originally anticipated, particularly when it comes to cryptocurrency and valuations that depend on who and what they owe. ”
“It’s still too early to tell how things will play out and Celsius still has a way to go before they can sort things out, but I’m sure all the pros on all sides are working hard for a better result. I expect an interesting trail and if the examiner is approved I look forward to reading the examiner’s report. Of course, that may not be ready before the end of 2022. We just have to wait and see,” he added.
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Given its current debt and cash flow, it’s estimated that Celsius will be out of cash by October. A court filing shows Celsius’ three-month cash flow forecast calling for sharply falling liquidity, suggesting the company will see its cash reserves drop about 80% from August through September.
Brian Pasfield, Chief Technology Officer of decentralized finance protocol Fringe Finance, explained the critical issue that led to crypto contagion in the first place. He told Cointelegraph:
“For centralized platforms to compete with fully decentralized alternatives, they need to solve their overhead. However, with decentralized competitors bolstered by the lack of overhead, it’s impossible for players like Celsius to sustain themselves without engaging in fragility strategies, which is what led to this mess in the first place.”
The Celsius bankruptcy process becomes more chaotic
The bankruptcy court process for the ailing crypto lender is becoming more chaotic by the day. First, Celsius’s lawyers made it clear that the chances of users getting their crypto back are legally impossible since they gave up their rights by signing the terms and conditions.
At Celsius’ first bankruptcy hearing, attorneys from the law firm Kirkland, led by Pat Nash, detailed how retail users with earn-and-borrow accounts transferred the title of their coins under the firm’s terms of service. As a result, Celsius is free to “use, sell, pledge, and re-pledge” these coins as it pleases.
Celsius Account Terms of Use. Source: Celsius presentation
Through “day one” filings, Celsius said it intends to pay employees and continue their services. The company said it will continue to service existing loans with maturities, margin calls and interest payments as in the past. Celsius has also appointed a new director to guide it through the restructuring process, including David Barse, a so-called distressed investing “pioneer” who is the founder and CEO of index company XOUT Capital.
The case took a different turn when the United States Trustee’s representative overseeing the case claimed there was “no real understanding” of the nature or value of Celsius’ crypto holdings — or where they are being held. The Trustee has requested an auditor to investigate allegations of “incompetence or gross mismanagement” and “significant transparency issues” related to Celsius’ operations in connection with the bankruptcy proceedings.
Anna Becker, CEO and co-founder of EndoTech, explained to Cointelegraph what eventually led to the downfall of Celsuis, she told Cointelegraph:
“Celsius has built more than one credit machine. It has built a strong community of motivated believers. This is an example of a company that has been very aggressive and successful in its acquisition efforts, but has been moderately risky in its risk management. Its “tribe” of believers is optimistic but must face the harsh realities of its risk management and bankruptcy. So while there is a lot of excitement in the community, the value crater is real and continues to deepen.”
On Aug. 17, Chief Bankruptcy Judge Martin Glenn of the Southern District of New York approved Celsuis’ request to conduct BTC mining and selling operations to restore financial stability, over objections from the U.S. Trustee. This means they may have the ability to continue as a business and survive bankruptcy, of course on a reorganized and restructured basis rather than liquidation.
The efforts of the Celsius community may not be successful
The Celsius community stayed strong after the funds freeze and throughout the bankruptcy process.
There is also an unofficial community-led recovery plan that seems to be gaining traction on Twitter under the hashtag #CELShortSqueeze. The movement seeks to force short sellers of the Celsius token to cover their short positions by purposefully inflating the price of the CEL token through bulk buying and withdrawing the token from various exchanges.
Indeed, $CEL could be the trade of the year. Shorters made REKT big…
You can’t make this shit up, that’s why I love #Crypto #Celsius #CelShortSqueeze pic.twitter.com/A6OQwoQMhS
— DoopieCash® (@DoopieCash) June 21, 2022
The price of CEL surged from $0.67 on June 19 to $1.59 on June 21, a 180% increase compared to the crypto market’s 12.37% surge over the same period. However, experts believe the effects of the short squeeze will not last long.
Jackson Zeng, CEO of crypto brokerage firm Caleb & Brown, told Cointelegraph, “Celsius holds the majority of CEL, 90% based on Etherscan, but cannot sell or move the token during its bankruptcy proceedings. However, traders still have to pay 0.5-2.5% per day to short the token, so many have been forced to close their short positions over the past two months,” he added:
“It is unlikely that a company that goes bankrupt has a positive path ahead of it. Once the supply is unlocked, the shorts can be covered, negatively impacting the price and eliminating the effects of the short squeeze.”
Celsius CEO Alex Mashinsky reportedly “took over” the crypto lending firm’s trading strategy amid rumors in January that the US Federal Reserve was planning a rate hike.
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According to a Financial Times report, Mashinsky personally directed individual trades and overruled financial experts to protect Celsius from anticipated crypto market declines. In one instance, the Celsius CEO reportedly ordered the sale of “hundreds of millions of dollars” worth of Bitcoin and repurchased the coins at a loss less than 24 hours later.
As the bankruptcy proceedings reveal more complexities with the crypto lender, Celsius could suffer a fate similar to many of its peers, including Voyager, BlockFi, and Hodlnaut.
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