Crate-backed crypto company Celsius Network files for bankruptcy protection

Celsius Network logo and representations of cryptocurrencies are seen in this illustration taken, June 13, 2022.DADO RUVIC/Reuters

Celsius Network Ltd. has filed for bankruptcy protection, claiming a restructuring will help the cryptocurrency lender stabilize and reorganize its business as tokens such as bitcoin plunge to multiyear lows and investors take stock of the convoluted web of connections between troubled crypto companies.

Last month, Celsius abruptly halted all transactions and withdrawals between its nearly two million customers, citing “extreme market conditions.” The New Jersey-based company had long touted itself as the “world’s leading crypto earning and lending platform,” offering interest rates as high as 18 per cent to depositors.

Because of its early success, Celsius attracted major global investors, including Canadian pension fund giant Caisse de depot et placement du Québec, which invested US$400-million as part of a funding round that valued Celsius at around US$3-billion late last year.

In February, Celsius hired former Royal Bank of Canada Chief Financial Officer Rod Bolger as his own head of finance, following his departure from the bank last year. “As a proven leader in the space with significant backing, liquidity, and an incredibly exciting growth trajectory, I knew Celsius was the right home for me,” Mr. Bolger had said in a company blog post.

But late on Wednesday, Celsius filed for bankruptcy protection in New York, claiming to have US$167-million in cash on hand and estimating assets and liabilities between US$1-billion and US$10-billion.

Caisse initially defended Celsius when the company halted transactions on June 13. “Celsius is taking proactive action to uphold its obligations to its customers and has honored its obligation to its customers to date,” spokesperson Kate Monfette had said.

In an interview on Thursday, Ms. Monfette declined to answer whether the Caisse’s equity investment will be wiped out by Celsius’ bankruptcy motion. She also declined to say whether this will impact future plans at the Caisse for investments in cryptocurrencies.

“We are following the matter closely and reviewing the filings submitted by Celsius. We are not in a position to comment further at this time,” Ms. Monfette told The Globe and Mail.

Securities regulators in Vermont, Kentucky, New Jersey, Texas, Alabama and Washington confirmed on Thursday that they are actively investigating Celsius, adding that the company’s insolvency does not inhibit their probes. The US Securities and Exchange Commission declined to comment.

Celsius has not responded to repeated requests for comment, causing speculation about what exactly forced the company to freeze its customers’ accounts.

“This is the right decision for our community and company,” said Alex Mashinsky, chief executive officer for Celsius, in Wednesday’s blog post. “I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”

Celsius added that its cash on hand “will provide ample liquidity to support certain operations during the restructuring process.” The company said it expects the court to approve its motions for requests to pay its employees and continue their benefits without disruption.

It remains unclear whether Celsius users will be able to pull out any of their money from the platform. Under the company’s terms of service, Celsius states: “You explicitly understand and acknowledge that the treatment of digital assets in the event of such an insolvency proceeding is unsettled, not guaranteed, and may result in a number of outcomes that are impossible to predict reliably , including but not limited to you being treated as an unsecured creditor and/or the total loss of any and all digital assets reflected in your Celsius account, including those in a custody wallet.”

Celsius – which has more than 100,000 creditors – also states in its terms of service that if the company becomes bankrupt, customers “may not have any legal remedies or rights in connection with Celsius’ obligations.”

Bitcoin has fallen by more than 70 per cent this year. It recently plunged well below the psychologically important level of US$20,000 – hovering around US$19,700 on Thursday. That price level is of symbolic significance, as it was roughly the peak of the 2017 cycle before the bottom fell out.

Meanwhile, ether, which is the second-most popular cryptocurrency, has also traded below its symbolically important level of US$1,000 in July. On Thursday, pink ether to around US$1,080.

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