Celsius Crypto Lender Files for Bankruptcy Amidst Market Turmoil

Amidst plunging crypto prices and market volatility, Celsius Network, a major crypto lender, has filed for Chapter 11 bankruptcy protection. This move follows a month-long struggle with insolvency, triggered by the collapse of terraUST (UST) and LUNA, which accelerated a decline in consumer confidence in the crypto industry.

Celsius Network Files for Bankruptcy Amidst Crypto Market Turmoil

New York, July 13, 2022 - Crypto lender Celsius Network has filed for bankruptcy protection under Chapter 11 in the United States Bankruptcy Court for the Southern District of New York. The move comes after a months-long struggle with insolvency issues precipitated by the recent crypto market downturn.

Chronology of Events Leading to Bankruptcy

April 12, 2022: Celsius Network first signals financial distress by announcing that its U.S. platform will no longer allow non-accredited investors to deposit new assets or earn rewards on its Earn platform. The company cites ongoing discussions with U.S. regulators regarding its Earn product as the reason for this move.

May 2022: The collapse of the algorithmic stablecoin terraUST and its sister coin LUNA triggers a $40 billion market crash, destabilizing the cryptocurrency industry and eroding consumer confidence. The event exacerbates a "crypto winter" and industry-wide sell-off, prompting a surge in withdrawals from Celsius users.

June 12, 2022: Celsius freezes withdrawals, swaps, and transfers due to "extreme market conditions," raising concerns about the platform's liquidity. The company does not provide a timeline for restoring services, stoking fears among its 1.7 million users.

June 30, 2022: Celsius hires restructuring expert Alvarez & Marsal to explore options to mitigate the impact of its financial difficulties. The firm emphasizes its focus on stabilizing liquidity and operations to provide further information to the community.

July 3, 2022: Celsius lays off approximately 23% of its workforce, following the suspension of user withdrawals and transfers. The company cites growing liquidity issues as the reason for the job cuts.

July 7, 2022: Decentralized Finance (DeFi) aggregator KeyFi files a lawsuit against Celsius in the New York State Supreme Court, alleging market manipulation and inadequate accounting controls to safeguard user deposits. KeyFi CEO Jason Stone accuses Celsius of misleading statements about its investment strategy and oversight, exposing its portfolio to market fluctuations without hedging. Stone further alleges that Celsius operated like a Ponzi scheme, causing him significant financial losses.

July 12, 2022: Celsius transfers $8.4 million in USDC stablecoin to DeFi lending protocol Aave, releasing collateralized tokens worth approximately $25 million, including stETH, LINK, and SNX.

July 13, 2022: Celsius Network files for Chapter 11 bankruptcy protection. The company states that the filing aims to stabilize its business and protect customers after the suspension of withdrawals. The filing prevents certain customers from being paid in full while allowing Celsius to recover value from illiquid assets.

July 14, 2022: A court filing by Celsius' advisory partner Kirkland & Ellis reveals a $1.3 billion hole in the company's balance sheet, marking the first official acknowledgment of the shortfall.

Implications for the Crypto Industry

Celsius' bankruptcy is the latest in a series of high-profile crypto company insolvencies, including Voyager Digital and Three Arrows Capital, which have shaken the industry. The event underscores the ongoing challenges faced by the crypto market, including volatility, regulatory uncertainty, and liquidity issues.

Celsius' failure has raised concerns about the safety and sustainability of crypto lending platforms. Investors are urged to exercise caution and carefully evaluate the risks associated with such platforms before entrusting them with their assets.

Regulators worldwide are expected to increase scrutiny of the crypto industry in the wake of recent events. This could lead to stricter regulations and oversight, potentially impacting the future development and adoption of cryptocurrencies.