First day of Celsius’ bankruptcy hearing

CoinDesk | Cheyenne Ligon, Krisztian Sandor | Jul 18, 2022

First day of Celsius’ bankruptcy hearing

News of Celsius’ liquidity crisis broke on June 12, when the company announced it was pausing all customer withdrawals, citing “extreme market conditions.” The company formally filed for Chapter 11 bankruptcy protection in the Bankruptcy Court of the Southern District of New York (SDNY) last week.

The company has an enormous $1.2 billion hole in its balance sheet (at least) – and retail depositors who held their crypto in Celsius accounts will likely be the last to get paid. Chapter 11 bankruptcy, also called a “reorganization bankruptcy,” pauses any attempts at civil litigation from creditors, and allows the company time to get its finances in order to repay its debts.

The firms claimed that most of the drop was due to the collapse in crypto prices, shrinking its assets by $12.3 billion. The rest of the losses added up as:

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• Users withdrew $1.9 billion from deposits up until June 12, the date when the company suspended withdrawals.
• Loan redemptions and liquidations reduced the firm’s assets by another $1.9 billion.
• Tether, the issuer of the largest stablecoin, USDT, in the market and also an investor in Celsius, set back the firm by an additional $900 million when it liquidated a loan to Celsius. (Tether issued a statement about the liquidation.)
• And the firm also lost $100 million from investments.

Celsius wants to recoup losings from mining operations as a ‘Hail Mary’

A 61-page declaration from CEO Alex Mashinsky – indicate that much of Celsius’ plan to recoup its losses depends heavily on the projected future profits of its half-finished, wholly owned mining subsidiary, Celsius Mining.  However, that mining subsidiary is also a debtor.

Lawyers for Celsius asked the court on Monday to approve over $5 million in spending to finish the construction of the mining center in Texas (which Celsius’ attorneys said would take approximately two more months), as well as pay duties on mining rigs “currently sitting with the customs authorities.”

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At Monday’s hearing, Shara Cornell, an attorney with the U.S. Trustee Program, voiced her concerns:

“There’s one mining company that I don’t believe is currently operable, but has caused the debtor a considerable amount of money. I’m not clear if construction may or may not be the best avenue for the debtor at this time,” Cornell told the court. “Why not just consider liquidating it and move on?”

Retail customers will suffer

Even if Celsius’ promises to mine 10,100 this year are accurate (something that is difficult to independently verify), at current market prices that would yield approximately $225 million – only a fraction of what is needed to make Celsius’ solvent.

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Nash told the court on Monday that Celsius has approximately 500,000 depositors, 300,000 of which have more than $100 worth of crypto in their accounts.