Crypto lender Celsius files for bankruptcy

Crypto lender Celsius has filed for bankruptcy a month after freezing customer withdrawals as the damaging slump in cryptocurrencies continues.

Crypto lender Celsius has filed for bankruptcy one month after freezing customer withdrawals.

In a statement, Celsius said it had initiated voluntary Chapter 11 proceedings, which will allow it to keep operating while restructuring its financial obligations.

The move comes after the slump in bitcoin and other digital currencies continues to reverberate across the industry.

It follows a bankruptcy filing by US crypto lender Voyager Digital, the crash of the Terra cyptocurrency, the liquidation of Singapore-based cryptocurrency hedge fund Three Arrows Capital, and moves by crypto lender Celsius to suspend customer redemptions.

Celsius describes itself as a blockchain-based platform where membership provides access to curated financial services that are not available through traditional financial institutions.

The bankruptcy filing follows Celsius’ decision on June 12 to pause withdrawals, Swap and transfers on its platform, which it said was necessary to stabilise its business and protect its customers.

Celsius said the Chapter 11 proceedings would provide it with the opportunity to stabilise its business and “consummate a comprehensive restructuring transaction that maximises value for all stakeholders”.

Other companies who have successfully reorganised under Chapter 11 include American Airlines, Delta, General Motors, Hertz, and Marvel.

“This is the right decision for our community and company,” Celsius co-founder and chief executive officer Alex Mashinsky said.

“We have a strong and experienced team in place to lead Celsius through this process. 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.”

It said it had $167 million in cash on hand, which would provide ample liquidity to support certain operations during the restructuring process.

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Alex Mashinsky. Credit: Photo by Piaras Ó Mídheach/Web Summit via Sportsfile

Celsius and some of its subsidiaries filed voluntary petitions for reorganisation under Chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York, on Wednesday (local time).

“Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps, and transfers on its platform to stabilise its business and protect its customers,” members of the special committee of the Board of Directors said.

“Without a pause, the acceleration of withdrawals would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”

Celsius said most account activity would be paused until further notice, and it would not be issuing new loans at this time.

Existing loans will continue to be serviced, with maturity dates, margin calls, and interest payments to continue as they have in the past.

Celsius said it encouraged customers to maintain their accounts and apps at this time.

Federal Reserve Vice Chair Lael Brainard said Friday that recent upheaval in the cryptocurrency markets showed the sector was subject to similar risks as conventional investments, underscoring the need for regulation to protect against the “false allure” of a quick profit.

“The crypto financial system turns out to be susceptible to the same risks that are all too familiar from traditional finance,” Ms Brainard said at a Bank of England conference.

“So this is the right time to ensure that like risks are subject to like regulatory outcomes and like disclosure so as to help investors distinguish between genuine, responsible innovation and the false allure of seemingly easy returns that obscures significant risk.”

The slump in bitcoin and other digital currencies continues to reverberate across the industry. Picture: Joe Raedle/Getty Images/AFP

Ms Brainard said despite investment losses so far, “the crypto financial system does not yet appear to be so large or so interconnected with the traditional financial system as to pose a systemic risk.”

Her remarks came a day after Federal Governor Christopher Waller also highlighted risks from cryptocurrencies, while saying that the turbulence had not yet threatened major financial institutions.

“That doesn’t mean if it was 10 times bigger wouldn’t have had an impact,” Mr Waller said in a discussion with the National Association for Business Economics.

“It is important that the foundations for sound regulation of the crypto financial system be established now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system.”

Mr Waller said the recent decline in virtual currencies has exposed the falsity of claims that such investments can be a hedge against inflation, or a way to offset other risky assets.

“Crypto-assets have plummeted in value and have proven to be highly correlated with riskier equities and with risk appetite more generally,” Waller said.

— with AFP