Celsius Network, one of the world’s largest cryptocurrency lenders, has filed for bankruptcy, following a wave of digital asset companies freezing assets and entering restructuring amid a sharp selloff in cryptocurrencies this year.
The Hoboken, New Jersey-based company’s Chapter 11 bankruptcy filing in New York federal court comes about a month after frozen client fundscapturing billions of dollars in more than a million accounts.
The court filing lists between $1 billion and $10 billion in assets, the same amount in liabilities and more than 100,000 creditors.
As cryptocurrencies have sunk in value in 2022, lenders offering high-yield crypto loans have faced cash crunches and customer buyouts, putting them on shaky financial footing. Some responded by blocking customer withdrawals, withdrawing money at bad prices or entering into restructuring procedures.
Celsius said its filing would be “an opportunity to stabilize the business” and undergo a restructuring “that maximizes value for all stakeholders”.
“Today’s filing follows Celsius’ difficult but necessary decision last month to pause withdrawals, exchanges and transfers on its platform in order to stabilize its business and protect its customers,” a special committee of Celsius’ board of directors said in a press release.
If Celsius had not limited withdrawals, he said, he would have effectively been subject to a string of his deposits. Buyers who withdrew their assets first would be 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 CEO Alex Mashinsky said in a press release.
Lenders like Celsius took customer deposits and gave out funds at higher interest rates, making a profit on the difference. To lure investors, Celsius offered high interest rates and claimed that its risks were low. But, like The Financial Times reported in an investigationCelsius has taken on increased financial risks in recent months as demand for loans from institutional investors has declined.
Other major digital lenders have faced a similar fate amid a sharp selloff in cryptocurrencies and the implosion of highly leveraged crypto hedge fund Three Arrows Capital, which filed for bankruptcy this month.
Crypto lender Voyager Digital also recently filed for bankruptcy. Some companies narrowly avoided a similar fate by getting emergency cash at fire sale prices.
On July 1, BlockFi agreed to a bailout deal with cryptocurrency exchange FTX that valued the lender at $240 million, well below its previous valuation of $4 billion.
Celsius’ failure is similarly poised to leave venture capital backers with big losses. In late 2021, it raised $750 million from WestCap and Quebec-based pension fund Caisse de dépôt et placement du Québec, valued at more than $3 billion.
Kirkland & Ellis is serving as legal counsel to Celsius, while Centerview Partners is serving as its financial advisor.
Alvarez & Marsal, the consulting firm best known for unwinding the failed investment bank Lehman Brothers after the 2008 financial crisis, is advising Celsius on the restructuring.