Crypto lender Celsius is the latest in a growing number of crypto-related companies filing for bankruptcy. The company filed for Chapter 11 bankruptcy protection following a month of difficulties, although it plans to continue certain operations for now using cash on hand.
In a statement on Wednesday, Celsius said it would try to stabilize its business through restructuring “that maximizes value for all stakeholders.”
Celsius Officially Files For Bankruptcy
About a month ago, the crypto lender froze its customers' accounts, citing "extreme market conditions." On Wednesday before the bankruptcy filing was officially made public, an unnamed source had told CNBC that the company's attorneys were in the process of notifying regulators in each state.
In a statement, Celsius co-founder and CEO Alex Mashinsky said he is "confident" that the bankruptcy filing will end up being "a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company."
The crypto lender said it had $167 million in cash on hand to support its operations during the bankruptcy and restructuring process. According to the bankruptcy filing, Celsius has over 100,000 creditors including both customers and lenders.
How Celsius Made Money
Its largest creditor is the Pharos USD Fund, to which it owes $81 million. Celsius was one of the largest crypto lenders with loans to clients totaling over $8 billion and nearly $12 billion in assets under management as of May.
The company reported 1.7 million customers as of last month and offered yields of up to 17% on its interest-bearing accounts. Celsius made its money by lending its customers' cryptocurrency out to borrowers willing to pay exorbitant interest rates on their loans.
It then paid some of the revenue it earned on those loans to its customers. However, when crypto prices crashed, Celsius' business model collapsed due to liquidity problems.
Is Celsius The Next Mt. Gox?
Celsius joins a growing list of other high-profile bankruptcies among crypto-related firms. Voyager filed for Chapter 11 bankruptcy protection last week following losses stemming from the collapse of crypto hedge fund Three Arrows Capital. A judge froze the hedge fund's remaining assets this week, and it is now in the process of liquidation.
Celsius plans to continue operations during the restructuring process, although withdrawals remain paused. A crypto tax specialist told Cointelegraph that customers and investors might not see their funds returned for the "foreseeable future," which is what happened following the hack of crypto exchange Mt. Gox in 2014. The court proceedings associated with that incident are still ongoing.
The tax specialist warned that the Celsius restructuring could be "Mt. Gox 2.0," adding that the court proceedings could drag out, preventing any customers from receiving any of their deposits back "well into the future."
Mt. Gox was the largest bitcoin exchange from 2010 until it collapsed in 2014 after the loss of over 850,000 bitcoins on deposit. Now eight years later, customers are still waiting for their funds to be released from the crypto exchange as court proceedings continue "in multiple jurisdictions globally and in Japan."