Can Celsius avoid bankruptcy as crypto markets continue to crash?

Text/ Financial News

Celsius' crypto faithful have a plan to avoid bankruptcy

Recently, the progress of Celsius has concerned many users. This is a centralized crypto financial management platform established in 2018, providing users with loans and interest income. On June 12, the platform suspended user withdrawals due to "extreme market conditions." As of May this year, the platform has provided more than $8 billion in loans to customers and managed assets of $12 billion.

The troubled company hired restructuring advisers from consulting firm Alvarez & Marsal to help it file for bankruptcy protection, according to a report by The Wall Street Journal on June 24. Lawyers from Akin Gump Strauss Hauer & Feld are also reportedly advising its boss.

In recent weeks, Bitcoin has plummeted to around $20,000, plunging the industry into another potential “crypto winter.” Celsius was an early victim of this price crash — it announced on June 12 that it was blocking withdrawals from its platform citing “extreme market conditions.” Currently, users have been unable to withdraw or transfer Bitcoin and other crypto assets on the Celsius network for two weeks.

Is it bankruptcy or reopening withdrawals?

Bosses, including CEO Alex Mashinsky, have been pushed into standard bankruptcy proceedings by lawyers, while others want to ask Celsius platform customers whether they want the platform to reopen for withdrawals.

There appears to be a brewing internal storm at Celsius over its potential plans to file for bankruptcy, with some involved in the talks instead pushing to tap its customer base for support. Tensions are growing between Celsius’s outside advisers and senior staff, with some involved in the talks instead urging the company to consult its 2 million-strong customer base to understand how it should proceed, according to two people familiar with the matter.

One option is to reopen withdrawals on a limited basis to preserve Celsius’ remaining liquidity, the people said.

The “HODL” feature of the Celsius app is one way to conduct an impromptu vote, they said.

The consultant told the company it could not communicate with clients because they could be seen as prejudiced if a bankruptcy occurred.

One potential solution would be to reopen withdrawals and put a cap on how much customers can withdraw each month so Celsius isn’t overwhelmed by a run on its assets , the sources said. Customers would be asked to toggle HODL mode on or off to indicate approval or disapproval of a potential rescue plan, they said.

They added that this would provide a better long-term solution for retail investors who want to keep their cryptocurrencies in token form, hoping that the value will rise again in the long run, rather than returning a significantly reduced amount in fiat currency, which is often the end result of traditional bankruptcy filings.

One source said that in such cases, clients would "get paid last, the lawyers would take their commission, we would pay the others first and then they would get something".

But if the company can negotiate with its customer base and institutional investors, the source added, “we can get you all your money back. It’s a classic liquidity issue.”

“Users still trust us. They don’t think we’re charlatans, they think we’re in a sticky situation, and they believe in cryptocurrencies,” they said.

“We want the community to know that our goal remains to stabilize our liquidity and operations, and this process will take time,” Celsius said in a June 20 blog post.

The post also said it plans to continue working with regulators regarding its suspension of withdrawals and other transactions and its “determination to find a solution.”

Suspend withdrawals but continue to receive earnings?

Meanwhile, according to some Twitter users, the troubled Celsius network continues to pay weekly rewards despite suspending withdrawals two weeks ago, which has also confused crypto users on Twitter, who can continue to receive earnings but cannot withdraw them.

Simon Dixon, CEO and co-founder of BnkToTheFuture, and others expressed the same confusion to his many followers on Twitter:

“Celsius emailed one of my accounts and while I can’t withdraw funds, @CelsiusNetwork is still paying out earnings. Can I still get my earnings? Any thoughts?”

After searching “Celsius still paying” on Twitter, countless users questioned the lending platform, with some users (such as CryptoStylesUSA) calling it “insulting” that Celsius continued to pay weekly rewards while keeping their “crypto hostage.”

Although it does not currently allow users to withdraw their assets, Celsius appears to still be offering a 10% annualized bonus on first deposits of up to $250,000.