Celsius’ crypto faithful have a plan to avoid bankruptcy

An internal storm is brewing at crypto lender Celsius over its potential plans to file for bankruptcy, with some involved in the talks instead pushing to tap its customer base for support.

The strain at the beleaguered firm — which hired restructuring consultants from advisory firm Alvarez & Marsal to help with a possible bankruptcy filing, the Wall Street Journal reported on 24 June — comes as Celsius contends with the recent crash in digital asset values. Lawyers at Akin Gump Strauss Hauer & Feld are also reportedly advising bosses.

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In a sign of growing tension between Celsius’ external advisors and senior staff, some people involved in the talks are instead pushing the company to consult its 2 million-strong customer base over how it should proceed, according to two people familiar with the matter.

One option, according to the people, would involve a limited reopening of withdrawals to protect Celsius’ remaining liquidity.

Bitcoin’s collapse in recent weeks to around $20,000 has plunged the sector into another potential “crypto winter”. Celsius was an early victim of the crash — it announced on 12 June that it blocked withdrawals from its platform, citing “extreme market conditions”. As of May, it had more than $8bn lent out to clients and $12bn in assets under management.

As a result, customers have been unable to withdraw or transfer bitcoin and other cryptocurrencies on Celsius’ network for a fortnight.

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There is a rift growing within people involved in the talks, the sources said. Bosses including chief executive Alex Mashinsky have been pushed by lawyers towards standard bankruptcy proceedings, while others want to ask Celsius’ customers whether they would like it to reopen withdrawals, albeit in a limited manner.

Celsius app’s “HODL” feature is one way to run an impromptu ballot on how to proceed, they said.

Advisers have told the company it must not communicate with customers because they may be seen to be prejudiced in the event of a bankruptcy.

The sources said a potential solution would be to reopen withdrawals with a cap on how much customers can take out per month so that Celsius is not overwhelmed by a run on its assets. Customers would be asked to turn HODL mode on or off to signal approval or disapproval for a potential rescue plan, they said.

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This would provide a better long-term solution for retail investors who want to keep their cryptocurrency in token form in the hope that values would rise again in the long run, they added, rather than have a significantly depleted amount returned in fiat currency, which they said would be the ultimate result of a conventional bankruptcy filing.

In that case, customers would be “the last to be paid, the lawyers will take their cut, we’ll pay everyone else out first, and then they’ll get something,” one source said.

But if the company could negotiate with its customer base and institutional investors, the source added, “we could make you whole again. It’s a classic liquidity problem.”

They told FN: “[Customers] still trust us. They don’t think we’re charlatans, they think we’re in a tricky place and they believe in crypto.”

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Celsius said in a blog post on 20 June that, “we want our community to know that our objective continues to be stabilizing our liquidity and operations. This process will take time.”

It also said it plans to continue working with regulators regarding its pause in withdrawals and other transactions and its “determination to find a resolution.”

To contact the author of this story with feedback or news, email Alex Daniel

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