Former crypto lending giant Celsius successfully completed its bankruptcy process. It announced its new business model as a bitcoin mining company. The company faced legal and regulatory hurdles after the market crash in 2022, but managed to repay its creditors and reinvent itself.
Bankruptcy Exit and Distribution Plan
Celsius Network, a former crypto lending platform that filed for Chapter 11 bankruptcy in July 2022, successfully emerged from the restructuring process. It announced its transition to a new company focused on bitcoin mining.
A New York court approved the company’s exit from bankruptcy on Nov. 9, 2023, after receiving overwhelming support from about 98% of its creditors. The reorganization plan includes the distribution of more than $3 billion worth of cryptocurrency and fiat currency to the creditors. It will also create a new entity called Ionic Digital Inc., a bitcoin mining company managed by Hut 8 and headed by Matt Prusak.
Celsius said it increased the amount of crypto available for distribution to creditors by around $250 million through converting altcoins to BTC or ETH and through previous settlements. PayPal and Coinbase will make the distribution. Celsius will also shut down its mobile and web applications by Feb. 28, 2024.
Shift to Bitcoin Mining
The company’s shift to bitcoin mining came after the U.S. Securities and Exchange Commission (SEC) gave feedback on certain aspects of the original plan, which also involved staking. Celsius said it intends to apply to register the shares of Ionic Digital as a publicly traded company. They are confident that the mining business has significant earnings potential moving forward.
Legal and Regulatory Challenges
Celsius’s bankruptcy process was marred by legal and regulatory challenges. That included fraud allegations against its former CEO Alex Mashinsky, who resigned in September 2022. He was arrested for allegedly manipulating the price of the CEL token. Mashinsky denied the charges and was released on a $40 million bond. His trial is scheduled for September 2024.
Celsius also settled with the U.S. Department of Justice, the Commodity Futures Trading Commission, and the New York Attorney General for a total of $4.7 billion. David Barse and Alan Carr, members of the special board committee that steered the bankruptcy, said they managed to secure the platform’s cryptocurrency, negotiate a deal with creditors, reorganize the part of the company that could continue, and establish a litigation trust.
A Cautionary Tale for the Crypto Industry
Celsius was one of the largest crypto lending platforms in the industry, with over 1 million users and $17 billion in assets under management at its peak. The company offered high-interest rates on deposits of various cryptocurrencies, as well as loans and rewards in its native CEL token. However, the company faced liquidity issues and regulatory scrutiny after the market crash in May 2022. That triggered a massive sell-off of CEL and a halt of withdrawals.
Celsius’s bankruptcy and reorganization is a cautionary tale for the crypto industry. It shows the risks and challenges of operating a lending platform in a volatile and uncertain market. It also demonstrates the resilience and innovation of the crypto community, as Celsius managed to exit bankruptcy and reinvent itself as a bitcoin mining company.
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