Last week, this made headlines all over the space when Celsius filed for Chapter 11 bankruptcy. On Wednesday, a crypto lender firm went on to file for bankruptcy protection in New York’s Southern district court. Celsius Bankruptcy filing came in the wake of extreme market conditions that earlier led the crypto firm to halt withdrawal operations on the platform.
Instance of Celsius filing for bankruptcy was not only a case of its own. Earlier than Celsius, major crypto brokerage firm, Voyager Digital also went on to file for Chapter 11 bankruptcy protection. Broker firm also went through a similar phase where it also had to stop customer withdrawals on the platform, about a month ago. Voyager fell into bankruptcy due to loan default of hedge fund Three Arrows Capital.
In its bankruptcy filing in court, Celsius outlined that they had a loss of about $1.2 billion from their balance sheet. Additionally, the crypto lender had liabilities worth $5.5 billion, while $4.3 billion worth of assets. Since the company succeeded on its debt they owed to institutional creditors. However, retail investors were left somewhere behind and they are now most likely to face the worst due to the fall of Celsius.
A New York-based law firm’s business restructuring associate said that knowingly or unknowingly, Celsius methods would result in creating a clash between its institutional creditors and retail customers. He further added that the crypto firm has also pointed out that their customers had made transfers of their crypto assets’ ownership to Celsius. This instance was enough to make such customers turn into unsecured creditors. Such activities of crypto lenders might turn into an act of weakening customers’ expectations and trust in the firm.
One of the founder partners at the law firm based in florida, said that whatever Celsius is going through is threatening situations and its result of possibilities that anything could happen inside an unregulated space. He said that people who were customers of the crypto firm were thinking as if they were putting money in some low-risk investment. But eventually, their investments had turned into a high risk one and lost almost all of it. He added that the bankruptcy process may not be friendly for retail users of Celsius.
