Celsius vows to return from bankruptcy but expert fears Mt. Gox repeat

Crypto lending platform Celsius confirmed on Wednesday that it has filed Chapter 11 bankruptcy proceedings in the court for the Southern District of New York.

The announcement was shared on the company’s Twitter and shared with account holders via email on Wednesday, with a wish to “come out of Chapter 11 positioned for success in the cryptocurrency industry.”

According to Investopedia, a Chapter 11 bankruptcy allows a company to stay in business and restructure its obligations. Companies that have successfully reorganized under Chapter 11 include American Airlines, Delta, General Motors, Hertz and Marvel, according to an updated Celsius FAQ.

Danny Talwar, head of tax at crypto-accounting software firm Koinly, raised concerns with Cointelegraph that the procedure could mean Celsius investors and clients may not see their funds returned in the “future.” predictable”, similar to the fallout from the Mt. Gox hack in 2014 which is still ongoing:

“It could be Mt. Gox 2.0. Legal proceedings may prolong the process of recovering any of their deposits from Celsius customers in the future.

“For context, Mt. Gox was the largest Bitcoin exchange from 2010 until its collapse in 2014, losing over 850,000 BTC in deposits,” Talwar explained. “Clients are still awaiting the release of funds from the exchange now (in 2022), with legal proceedings in multiple jurisdictions around the world and in Japan.”

Celsius, in a statement on Wednesday, said it intended to use $167 million in cash to continue “certain operations” during the restructuring process and said it intended to “restore activity across the platform” and to “return value to customers”. .”

However, customer withdrawals are expected to remain paused “for the time being”.

Celsius board members said the move into bankruptcy followed a “difficult but necessary” decision last month to suspend withdrawals, trades and transfers on the platform.

Alex Mashinsky, co-founder and CEO of Celsius added in a statement that it’s the “right decision for our community and our business.”

“We have a strong and experienced team in place to guide Celsius through this process. I am confident that when we look back on the history of Celsius, we will see this as a defining moment, where acting with determination and confidence served the community and strengthened the future of the company.

Through “day one” motions, the company said it intended to pay employees and maintain their benefits. The company says it will also continue to service existing loans with maturity dates, margin calls and interest payments to continue as in the past.

Celsius has also appointed a new director to guide it through the restructuring process, including David Barse, a “pioneer” struggling investment who is the founder and CEO of index firm XOUT Capital.

Related: Vermont becomes the sixth US state to launch an investigation against Celsius

Although some community members viewed the news as negative for Celsius, Talwar argues that Celsius’ filing for bankruptcy could provide temporary relief to crypto markets:

This Chapter 11 filing allows crypto markets to breathe a collective sigh of relief, as it likely means Celsius will not sell its holdings in an already depressed market.

Earlier today, Celsius closed the last of its decentralized finance (DeFi) debt owed to Compound, Aave and Maker, reducing its initial $820 million debt to just $0.013 over the course of a month.

Talwar said that paying off his debts just before the bankruptcy filing might have been necessary so that “all remaining client funds and collateral were accounted for”.

Comments are closed.