Crypto lender Celsius filed for Chapter 11 bankruptcy earlier this week. The filing, however, revealed a deficit of $1.2 billion on its balance sheet, one of the reasons why FTX walked away from a potential acquisition deal. According to the document, the company currently holds $4.3 billion in assets against a whopping $5.5 billion in liabilities.
“Shadow Bank” Claims
Frances Coppola, a prominent economist and long-standing crypto critic, does not believe the depositors will get their money back. She alleged Celsius was operating as a “shadow bank.”
“Celsius is not an asset manager, it’s a shadow bank. And deposits in banks aren’t even “customer assets,” let alone “assets under management.” They are unsecured loans to the bank. They are thus liabilities of the bank and fully at risk in bankruptcy.”
In the terms and conditions section, Celsius clearly states that “in the event of bankruptcy, customers might not get all – or indeed any – of their money back.”
Crypto lenders, including Celsius, garnered significant traction during the peak of the crypto bull. High-interest rates and easy accessibility of loans attracted many depositors. These entities pocketed profits by loaning out digital assets due to the increased demand from institutional investors. Their business model, however, drew criticism following the market downturn.
Celsius Network has $1.75 billion in crypto assets as well as $720 million worth of mining assets. While the crypto lender did claim to possess $600 million worth of CEL tokens, the shrinking market cap and the falling prices have not helped the firm’s case. For context, CEL’s market cap has dropped to $185 million.
Proving Cryptos Are Securities May Have Worked
Industry experts suggested that Celsius should have opted for a Securities Investor Protection (SIP) rather than a chapter 11 bankruptcy. Swan Bitcoin founder Cory Klippstein also said that a SIP filing would have helped the customers with the ownership of their assets on the platform. But with the latter, Celsius owns these assets.
Klippstein also said that it will be in the interest of Celsius as well as Voyager Digital’s users to argue that all of their crypto assets are securities “so that they can be first in line for payouts.”