Celsius’s Chapter 11 bankruptcy filing dashes hopes that customers barred from withdrawing funds will ever get their money back
“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 CEO Alex Mashinsky said in a statement.
But many members of that “community” may be entering panic mode. Celsius paused customer withdrawals on June 12, citing “extreme market conditions,” and users whose funds have been locked on the platform since are likely wondering if they’ll ever see their money again.
For now, Celsius says it is pursuing a restructuring rather than a liquidation, which means users may get some of their assets back. In its bankruptcy petition, the lender claimed that it has funds available for distribution to unsecured creditors, like its customers.
Customers on the Celsius Network subreddit were dismayed at the prospect of losing their savings and expressed anger at Celsius leadership for paying back debts to other decentralized finance services before restoring access to customers.
“About three months ago I deposited my life savings to Celsius in order to earn yield while waiting to find a nice apartment to buy for myself. I’ve managed to lose it all,” posted one Redditor. “I will never be the same person after this.”
Celsius did not immediately respond to a request for comment. In a Wednesday post published after the bankruptcy petition, Celsius said that it hoped to “put forward a plan that restores activity across the platform, returns value to customers, and provides choices.”
Celsius’s Chapter 11 petition follows crypto exchange Voyager Digital’s bankruptcy filing on July 6. Voyager froze withdrawals on July 1 after crypto hedge fund Three Arrows Capital defaulted on a $650 million loan from the exchange. Voyager users are in a similar predicament as Celsius customers. In court filings, Voyager said it expected users to be “impaired” from bankruptcy proceedings, meaning that customers would not get all their cryptocurrency back, and if they recover their holdings, the money may not be in the same kind of cryptocurrency they deposited it in.
In May, crypto exchange Coinbase inserted a disclosure in its quarterly earnings warning that, in the event of insolvency, its users would be treated as “general unsecured creditors,” who are usually compensated last—if at all—during a bankruptcy proceeding.
By contrast, deposit insurance offered by the Federal Deposit Insurance Corporation protects customer funds. In the event of a bankruptcy, the FDIC insures up to $250,000 of a customer’s deposits.
Celsius’s announced insolvency—long expected by crypto observers—so far isn’t hurting the larger crypto market. Bitcoin is up 3.6% over the past 24 hours, as of 1 p.m. Hong Kong time.