Celsius Kicks The Can

Regular readers of CoinSnacks should be well aware of what’s happening with Celsius.

For those needing a quick refresher, Celsius was a crypto lender that took customers’ funds and earned a yield. At its peak, it was one of the largest crypto lenders, managing $26 billion in assets in October 2021.

As you may have noticed, we use the word “was” when talking about Celsius. That is because, as of July 13th, Celsius is officially bankrupt.

A Fall From Grace

We have previously covered what went wrong with Celsius, but because this is probably (and hopefully) the last time we talk about Celsius, let’s quickly recap what happened.

As a crypto lender, Celsius made money by taking people’s money and using it in various DeFi projects to earn a yield. The idea was that it simplified the process for people. Instead of having to figure out DeFi yourself, Celsius did all the work for you.

As we now know, the people over at Celsius, at best, had some degenerate tendencies and, at worst, wholly mismanaged the money.

Think of a way to lose money, and Celsius probably did it. Hundreds of millions of dollars lost in hacks and protocol failures. $500 million lost in Terra. Overleveraged investments into illiquid assets that suffered in the market downturn. Seriously, you name it; they did it.

Add it all up, and a company once flush with cash now has a $1.2 billion hole in its balance sheet.

The Bankruptcy

The numbers thrown out in the bankruptcy statement are quite stunning.

In addition to the $1.2 billion hole, Celsius only has $167 million in cash. Moreover, their assets under management have declined from $14.6 billion at the end of March to just $1.7 billion on July 14th. To top it all off, they currently owe $4.7 billion to customers, almost triple of what they have under management.

The company states that it plans to make it all back with its bitcoin mining operation, Celsius Mining. To make this plan work, they are asking the court for funds to finish building out their mining rigs in the hope of mining up to 15,000 bitcoin in a year.

The feasibility of this plan merits plenty of skepticism. As CoinDesk notes, mining alone will not be enough to fill their massive debt at current prices. Celsius, on the other hand, makes the case that mining will become more profitable as the crypto market rebounds. Although true, nobody knows when that will happen.

For the people with money still stuck in Celsius, this can’t be reassuring.

Where Are the Customer’s Yachts?

The company’s more than 1.7 million customer base is what makes this story particularly painful to cover. A large majority of them will turn out to be just average retail investors. Unfortunately, now it looks like they will be the ones who lose the most.

Celsius is arguing that customers transferred custody of their assets to Celsius, meaning those customers are unsecured creditors. Because Celsius is not subject to the same tight regulations that banks and traditional finance brokers are, they can file for Chapter 11 bankruptcy.

Chapter 11 allows them to restructure their finances instead of immediately liquidating, as seen in a Chapter 7 bankruptcy. Simply, Celsius can pay back their creditors in any order they like. Naturally, they are refunding institutional investors first… rather than customers.

Who knows if there will be enough money left over for retail investors. The probable answer is no. That means hundreds of thousands of innocent people will lose their money.

When you step back and look at the situation, it becomes clear that Celsius has left crypto with nothing but a black eye. It’s hard to say that luring hundreds of thousands of retail investors in by promising something unrealistic, woefully mismanaging their money, and then confiscating it to settle their debts with institutional investors is anything other than predatory. To top it off, a company that once proudly stated “banks are not your friends” now runs to Citibank for help with the restructuring. Embarrassing.