Celsius Network, one of the world’s largest cryptocurrency lenders, has filed for bankruptcy as a wave of digital asset firms froze assets and then began restructuring amid a strong crypto selloff -currencies this year.
The Hoboken, New Jersey-based company’s Chapter 11 bankruptcy filing in a New York court comes about a month after Celsius froze its clients’ assets, locking up billions of dollars on more than a million accounts.
The court filing listed between $1 billion and $10 billion in assets, the same amount of liabilities, and more than 100,000 creditors.
As cryptocurrencies plunged in value in 2022, lenders offering high-yield cryptocurrency loans faced cash shortages and customer buyouts, putting them on a precarious financial footing. . Some reacted by blocking customer withdrawals, raising funds at ridiculous prices or initiating restructuring proceedings.
Celsius said its filing would be an “opportunity to stabilize its business” and undergo a restructuring “that maximizes value for all stakeholders”.
“Today’s filing follows Celsius’ difficult but necessary decision last month to suspend withdrawals, trades and transfers on its platform to stabilize its business and protect its customers,” a committee said. special from the Celsius Board of Directors in a press release.
If Celsius hadn’t restricted withdrawals, he said he would indeed have experienced a run on his deposits. Customers who would have been the first to withdraw their assets would have been paid in full, leaving others with illiquid and less certain claims, the company said.
“This is the right decision for our community and our business,” Celsius Chief Executive Alex Mashinsky said in the press release.
Lenders such as Celsius took deposits from customers and loaned out the funds at higher interest rates, making a profit on the difference. To attract investors, Celsius offered high interest rates and claimed that its risks were low. But, as the FT reported in an investigation, Celsius has taken increased financial risks in recent months as demand for loans from institutional investors has fallen.
Other big digital lenders have suffered a similar fate amid a sharp sell-off in cryptocurrencies and the implosion of highly leveraged cryptocurrency hedge fund Three Arrows Capital, which filed its balance at the end of June.
Earlier this month, crypto lender Voyager Digital also filed for bankruptcy. Some companies narrowly avoided a similar fate by taking emergency cash at knock-down prices.
BlockFi agreed to a bailout deal with crypto trading exchange FTX on July 1, which valued the lender at up to $240 million, well below an earlier valuation of $4 billion.
Celsius’ failure is also poised to leave venture capital backers with heavy losses. At the end of 2021, it raised $750 million from WestCap and Quebec pension fund Caisse de dépôt et placement du Québec for a valuation of more than $3 billion.
Kirkland & Ellis is Celsius’s legal advisor, while Centerview Partners is its financial advisor.
Alvarez & Marsal, an advisory firm best known for unwinding the bankruptcy of investment bank Lehman Brothers after the 2008 financial crisis, is Celsius’ restructuring adviser.