Celsius Admits $1.19 Billion Crack in Bankruptcy Filing
Celsius cited a $1.19 billion shortfall on its balance sheet in bankruptcy court after the crypto lender is listed for Chapter 11. New Jersey-based Celsius froze funds last month, citing “extreme” market conditions; By cutting off access to individual investors’ savings and the crypto market’s volatility. In a filing Thursday in the U.S. Bankruptcy Court for the Southern District of New York, Celsius also said it has a $40 million claim against Three Arrows Capital; for a crypto hedge fund that filed for bankruptcy earlier this month.
On July 13, Crypto had approximately 23,000 delinquent loans for retail borrowers, a total of USD 411 million secured by collateral. With a market value of $765.5 million in digital assets. Crypto Lenders Thrive During COVID-19 Pandemic; Depositors were attracted by high-interest rates and easy access to loans, which traditional banks rarely offer. They issued tokens mainly to institutional investors, thus profiting from the difference. However, the lenders’ business model has come under scrutiny since a sharp sell-off in the crypto market led to the collapse of major tokens luna and terraUSD in May. Another U.S. crypto lender, Voyager, filed for bankruptcy this month. After stopping withdrawals and deposits. Vauld, another lender, also stopped funds this month.
Celsius – What to Expect
Celsius’ bankruptcy filing revealed some unpleasant surprises about the state of the crypto lending platform. On July 14, the firm’s CEO signed a bankruptcy filing that reveals the company has about $4.3 billion in assets against $5.5 billion in liabilities.
Customer deposits accounted for the majority of liabilities at $4.72 billion. Celsius assets include CEL tokens as assets of $600 million, $720 million in mining assets, and $1.75 billion in crypto assets. The value of CEL tokens has raised doubts in some crypto communities. However, the total market cap of CEL tokens should be only $321 million.
According to the signed document, the Celsius Mining Bitcoin mining operation mined bitcoin and can sell it to create enough assets to cover at least one loan and ensure the company’s income in the future. The company estimates it can generate around 15,000 BTC by 2023.
The founder of Swan Bitcoin laments the recent decision of both Celsius and Voyager. According to a tweet posted on July 14, a filing under SIPA would transfer ownership of the firm’s assets to clients. This would at least give them back a portion of their deposits. Under a Chapter 11 bankruptcy proceeding, a company that files for protection claims ownership of all assets. Under SIPA, a failed firm must either hand over its accounts to another firm or go into liquidation and send funds to investors.
Some analysts are skeptical and believe that Celsius depositors will not get their money back. It alleges that Celsius operates a “shadow bank,” defined by Investopedia as a non-bank “unregulated financial intermediary.”
Conclusion
Deposits in banks are not even assets of the customer. These are not secure bank loans. Thus, they are bank liabilities and are at risk of bankruptcy. Banks’ depositors don’t have the right to take their funds back. Even if the terms of the account state that funds can be withdrawn at any time when the customer chooses, the bank can refuse to make withdrawals to customers if it does not have the cash to pay them.
In addition, the Celsius Terms of Use make it clear that Celsius has the right to do as it pleases with the funds deposited by customers. This specifically states that in the event of bankruptcy, clients may not get all or indeed anything back. CEL has been downward since January, falling 84% to $0.73.
