Celsius Network, one of the world’s largest cryptocurrency lenders, has filed for bankruptcy, following a wave of digital asset companies that have frozen assets and entered restructuring amid a sharp sell-off in cryptocurrencies this year.
The Hoboken, New Jersey-based company’s Chapter 11 bankruptcy filing in federal court in New York comes roughly a month after it froze customer assets, trapping billions of dollars across more than a million accounts.
The court filing listed between $1bn and $10bn in assets, the same amount in liabilities and more than 100,000 creditors.
As cryptocurrencies have plunged in value in 2022, lenders offering high-yield crypto loans have faced cash crunches and customer redemptions, putting them on shaky financial footing. Some responded by blocking customer withdrawals, raising money at distressed prices or entering restructuring proceedings.
Celsius said its filing would be an “opportunity to stabilise its business” and undergo a restructuring “that maximises value for all stakeholders”.
“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,” a special committee of Celsius’s board of directors said in a press release.
Had Celsius not restricted withdrawals, it said it would have effectively undergone a run on its deposits. Customers who were 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 company,” Celsius chief executive Alex Mashinsky said in the press release.
Lenders such as Celsius took in customer deposits and lent out the funds at higher interest rates, making a profit from the difference. To lure investors, Celsius offered high-interest rates and claimed its risks were small. But, as the Financial Times reported in an investigation, Celsius took on increased financial risks in recent months as demand for loans from institutional investors waned.
Other large digital lenders have faced a similar fate amid a sharp sell-off in cryptocurrencies and the implosion of a highly leveraged crypto hedge fund, Three Arrows Capital, which filed for bankruptcy this month.
Crypto lender Voyager Digital also filed for bankruptcy recently. Some companies have narrowly averted a similar fate by taking in emergency cash at fire sale prices.
BlockFi agreed to a rescue deal with crypto trading exchange FTX on July 1 that valued the lender at up to $240mn, far below an earlier valuation of $4bn.
Celsius’s failure is similarly poised to leave venture capital backers nursing large losses. In late 2021, it raised $750mn from WestCap and Quebec-based pension fund Caisse de dépôt et placement du Québec at a valuation of more than $3bn.
Kirkland & Ellis is serving as legal counsel to Celsius, while Centerview Partners is its financial adviser.
Alvarez & Marsal, a consultancy best known for unwinding failed investment bank Lehman Brothers after the 2008 financial crisis, is Celsius’s restructuring adviser.