What We Know About Celsius's Ch. 11 Bankruptcy so Far and What Should be the Solution
*Disclaimer: I do hold some crypto in Celsius, but its value is insignificant relative to my total savings.*
On June 12, 2022, Celsius suspended withdrawals and trading on its custodial platform. Customers who wanted to take their crypto out of the platform could not and dread quickly spread among the users. It did not help that CEO Alex Mashinsky and Celsius were incredibly quiet over the past month. There was some positive news as the blockchain showed Celsius paying off its various debts in wBTC, AAVE, and others to avoid liquidation. However, on July 13, 2022, Celsius announced that it filed for Chapter 11 bankruptcy.
This news cast a lot of uncertainty and concern among users. Chapter 11 is not the end of the world; Chapter 7 bankruptcy would be. Celsius can still operate and has a chance to make a comeback. However, how long the restructuring will take? That's the $167 million question. Will users ever get their crypto back, in part or in whole? When will that happen?
Initial Filings
Celsius's Ch. 11 filing revealed a $1.2 billion hole. Its assets constitute a cumulative total of $4.3 billion in value whereas its liabilities total $5.5 billion. In the filing, the company admitted to engaging in ill-advised high risk behaviors which "led to disproportional liabilities when measured against the unprecedented market declines". Celsius claimed that its Bitcoin mining business will help the company repay some of its loans and provide revenue in the future. However, it did not provide a timetable of when it will reach that sort of situation.
On July 18, 2022, Celsius had its first hearing and uploaded its first presentation to Stretto. In Slide 2, the company explained how its assets severely declined in value. User withdrawals clocked at $1.9 billion, $0.9 billion of Celsius's Tether holdings were liquidated, $0.1 billion of crypto was lost to investments, and loans made up another $1.9 billion. However, that pales in comparison to the $12.3 billion lost from the bear market.
It is not until Slide 18 where Celsius elaborates on what it will do to recover. The most noteworthy item is the fourth bullet point:
File and confirm a chapter 11 plan that will (i) provide customers with the option, at the customers’ election, to recover either cash at a discount or remain “long” crypto, (ii) maximize returns for stakeholders, and (iii) reorganize the Celsius business.
Basically, Celsius will propose a recovery plan of which users will have a say in. In addition, users will have the option to either take a haircut deal or wait longer to potentially get all of their crypto back.
My Thoughts
While, thus far, Celsius's future plans are vague, I am glad the company is at least considering giving customers options. On TrocProcLock's article on the same subject, I predicted a haircut solution and ideally, with the option to keep holding crypto in Celsius to get all of it back. The big question would be how much of a haircut will users see? 70%? 50%? 30%? Assuming the haircut is palatable, customers can get their money back at low risk and ride the next bull market to "recover" what they will have lost. And if users want to take in more risk in hopes to get 100% of their crypto back, then more power to them.
That said, if Celsius can make a comeback, what should it do to avoid this situation again? After all, in one fell swoop, it lost a lot of goodwill and trust from its customers. I wouldn't be surprised if the majority just want out and never go near Celsius ever again. Celsius published this rather bullish puff piece of itself on June 7, 2022, only to suspend withdrawals and swaps five days later. That's not a good look and this level of cockiness likely stemmed from Alex Mashinsky. From the few interviews and AMA's I have listened to, my impression of Mashinsky is that he runs his mouth way too much. He comes off as propagandistic not unlike that June 7 blog post.
Overall, I think Mashinsky needs to go. He may not be the problem, but he makes up a significant portion of Celsius's problems.
And as always, not your keys, not your crypto.
