Cryptocurrency Firm Celsius Files For Bankruptcy, Still Won’t Allow Withdrawals
The cryptocurrency world was riding high throughout 2021, with the benchmark Bitcoin crypto reaching a value of more than $60,000. However, the last few months have erased all those gains and then some. The market shift has taken down several major crypto firms, and we can add another to the list. After freezing transactions several weeks ago, the popular cryptocurrency lending platform Celsius says it has filed for bankruptcy.
Cryptocurrency operates in a financial gray area. While originally pitched as digital cash, the US government considers cryptocurrency to be commodities in the same class as metals, energy, and agricultural products. Unlike a bank that accepts deposits of fiat currency, the companies offering cryptocurrency financial services are largely unregulated. That means wild swings in the market are common, as are the deleterious effects of those swings.
Problems for Celsius began in May 2022 when a popular “stablecoin” called Terra collapsed. Many firms held Terra, which was pegged to the US dollar, as a way to earn high returns on their assets — Terra promised 20 percent annual returns, which in hindsight seems extremely suspicious. Crypto prices have been in a free fall ever since, with Bitcoin hovering around $20,000. Initially, Celsius was defiant, downplaying its exposure to the Terra collapse and falling prices. That changed in June when the company abruptly halted all transactions in the name of “protecting customers.”
Celsius claims to have more than 1.7 million active users, many of whom had moved all their assets into Celsius. Users even saw themselves penalized for failing to fulfill loan agreements by Celsius while they were unable to access their funds to address shortfalls. The company has been slow to respond, and now we know why. Celsius, which is headquartered in New Jersey, has filed for Chapter 11 bankruptcy. That means it will attempt to reorganize and continue operating.
In its filing, Celsius says it has assets valued between $1 billion and $10 billion, as well as liabilities between $1 billion and $10 billion. It also has $167 million in cash on-hand to continue operations during bankruptcy, but it won’t be unlocking accounts any time soon. Those who invested their life savings through Celsius are out of luck for now. It’s possible they will eventually get their funds back, but they may also be offered just a fraction. There is no guarantor behind cryptocurrencies like there is for a “fiat” currency like the US dollar. If you put money in a traditional bank, the FDIC will guarantee it up to $250,000 per depositor.
Celsius is the third major crypto company to file for bankruptcy since the crash. Crypto hedge fund Three Arrows Capital went out of business early this month (and is being liquidated), followed by lender Voyager Digital several days later. While Celsius might have enough funds to emerge from Chapter 11 as a functional company, it’s never going to have the same level of trust. In an unregulated market like cryptocurrency, trust is paramount.
Image via Stock Catalog, Wikipedia
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