Celsius bankruptcy proceedings show complexities amid declining hope of recovery

Celsius bankruptcy proceedings show complexities amid declining hope of recovery

Celsius Network’s bankruptcy proceedings have highlighted that the firm has misrepresented many of its assets with deep complexities in its operations.

The Celsius Network is one of many crypto lending firms that has been swept up in the wake of the so-called “crypto contagion.” 

Rumors of Celsius’ insolvency began circulating in June after the crypto lender was forced to halt withdrawals due to “extreme market conditions” on June 13 and eventually filed for chapter 11 bankruptcy a month later on July 13.

The crypto lending firm showed a balance gap of $1.2 billion in its bankruptcy filing, with most liabilities owed to its users. User deposits made up the majority of liabilities at $4.72 billion, while Celsius’ assets include CEL tokens as assets valued at $600 million, mining assets worth $720 million and $1.75 billion in crypto assets. The value of the CEL tokens has drawn suspicion from some in the crypto community, however, as the entire market cap for CEL is only $494 million, according to CoinGecko data.

Iakov Levin, CEO at centralized and decentralized finance platform Midas, told Cointelegraph that the CEL token value issue could adversely affect its holders. He explained:

“Celsius calculated CEL token denominated in $1 per token, requiring someone willing to pay this 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 cause a domino effect, and the broader digital asset market can suffer as a result.”

At the time of its bankruptcy filing, the firm had said it aims to use $167 million in cash-on-hand to continue certain operations during the restructuring process and said it intends to eventually “restore activity across the platform” and “return value to customers.”

A new bankruptcy report filed nearly a month after its Chapter 11 bankruptcy filing showed that the actual debt of the crypto lender stands at more than double what the firm showed in July. The report found that the company has net liabilities worth $6.6 billion and total assets under management of $3.8 billion. While in their bankruptcy filing, the firm has shown around $4.3 billion in assets against $5.5 billion in liabilities, representing a $1.2 billion difference.

Pablo Bonjour, managing director of Macco Restructuring Group, which has worked with several crypto firms going through the bankruptcy process, explained why Celsius’s balance gap increased and what lies ahead for the troubled crypto lender. He told Cointelegraph:

CEL’s price rose from $0.67 on June 19 to $1.59 on June 21, a 180% spike compared to the crypto market’s 12.37% rise in the same period. However, experts believe that the impact of the short squeeze won’t be long-lived. 

Jackson Zeng, CEO of crypto brokerage firm Caleb & Brown, told Cointelegraph, “Celsius holds the majority of CEL, 90% based on Etherscan, but can’t sell or move the token amid 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 last two months,” adding:

“A company undergoing a bankruptcy is unlikely to have a positive road ahead. Once the supply is unlocked, the shorts can be covered therefore having a negative impact on the price and removing the effect of the short squeeze.”

Celsius CEO Alex Mashinsky reportedly “took control” of trading strategy at the crypto lending firm amid January rumors the United States Federal Reserve planned to hike interest rates.

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According to a report from the Financial Times, Mashinsky personally directed individual trades and overruled financial experts in an effort to protect Celsius from anticipated declines in the crypto market. The Celsius CEO reportedly ordered the sale of “hundreds of millions of dollars” worth of Bitcoin in one instance, rebuying the coins less than 24 hours later at a loss.

As the bankruptcy proceedings reveal more complexities with the crypto lender, Celsius might face a similar fate as many of its peers including Voyager, BlockFi and Hodlnaut.

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