The bankruptcy document submitted by Celsius shows a massive $1.2 billion debt on its balance sheet. Analysts explain why Celsius customers would never get their funds back.
Embattled crypto lender Celsius Network filed for Chapter 11 bankruptcy earlier on Tuesday, July 13. On Wednesday, Celsius’ advisory partner, Kirkland & Ellis submitted a document filed to the US Bankruptcy Court of the Southern District of New York.
Celsius Bankruptcy Filing
The document reveals the further mess in the crypto lender and how it ill-managed customers’ money. In the bankruptcy document, Celsius revealed that it has $4.3 billion worth of assets. However, the company had liabilities amounting to %5.5 billion. Thus, a clear $1.2 billion deficit exists on the company’s balance sheet.
On the assets front, Celsius Network has $1.75 billion in crypto assets and $720 million worth of mining assets. Earlier, Celsius claimed to have $600 million in CEL tokens. However, the total market cap of CEL itself dropped to $174 million. Citing the filed document, popular crypto journalist Colin Wu explains:
“Celsius’ mining company incurred $576 million in liabilities, used $750 million to purchase rigs, and currently has 80,850 rigs with 43,632 in operation. But at present, the price of Bitmain mining machines has fallen by more than 50%. Using borrowed funds to buy Bitmain’s high-priced mining machines is also the reason many other companies are on the brink of bankruptcy”.
In the document, Celsius noted that it would start selling the Bitcoins it mined through its Bitcoin mining operations. This will help them generate sufficient assets to repay at least one of its loans. Celcius has projected that it could generate 15,000 BTC through 2023 via its mining operations.
Celsius has been undergoing a major liquidity crisis and had already stopped withdrawals during the last month of June 2022. Once in talks, crypto exchange FTX US has walked away from acquiring Celsius citing a $1.2 billion hole in the balance sheet.
Shadow Banking Activities
Crypto skeptic economist Frances Coppola wrote a blog post on Wednesday, July 14, explaining how Celsius has indulged in shadow banking activities and why it may never return customers’ funds. In the blog post, Coppola notes:
“Deposits in banks aren’t even ‘customer assets,’ let alone ‘assets under management.’ They are unsecured loans to the bank. They are thus liabilities of the bank and fully at risk in bankruptcy. Depositors in a bank do not have any legal right to return of their funds. Even if the terms of the account say funds can be withdrawn whenever the customer chooses, the bank can refuse to allow customers to withdraw their funds if it doesn’t have the cash to pay them”.
Also, in the company’s terms and conditions, Celsius clearly mentions that “in the event of bankruptcy, customers might not get all — or indeed any — of their money back”.
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 (@coryklippsten) July 14, 2022
Some of the analysts said that instead of Chapter 11 bankruptcy, Celsius and Voyager should have filed for the Securities Investor Protection Act (SIPA). With the Chapter 11 bankruptcy, Celsius still has control over the assets without any guarantee to customers.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
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