- Celsius declares bankruptcy.
- Uncertainty of its customers due to the impossibility of withdrawing their money.
- The company filed for Chapter 11 bankruptcy.
The Celsius platform filed for bankruptcy in the US in the last hours. Its clients still do not know how they will recover their money deposited there. Celsius stopped withdrawals of funds from its users which triggered a massive sale of digital currencies that reached $300 billion.
The New Jersey-based company reported that it has a $1.2 billion deficit on its balance sheet, which led to it declaring bankruptcy. From now on its customers will have to embark on a long journey to try to recover some of their savings. According to attorneys specializing in Chapter 11 U.S. Bankruptcy Law this will take a long time, even many years due to the complexity of the case.
Celsius specialized in what are known in the market as “crypto lenders”. This class of companies boomed during the pandemic, enticing customers with double-digit rates not offered by traditional banking, in exchange for their cryptocurrency deposits.
Institutional investors also paid Celsius higher rates to borrow from the coins, profiting from the difference. The business thrived until 2022 when problems with inflation began globally. Rising rates caused many cryptocurrency investors to begin a flight to safer, less volatile assets. With the fall of TerraUsd and Luna tokens the crypto lenders’ business went bust.
Celsius is not the first to fall. Earlier Voyager Digital had done so after suspending deposits and withdrawals as well as Singapore-based Vauld and Hong Kong’s Babel Finance.
Celsius currently has more than 100,000 creditors. It has 23,000 outstanding loans worth $411 million which are backed by crypto collateral worth $766 million reported this week. The platform has 1.7 million customers, mostly small investors
Unlike traditional banks, crypto operators such as Celsius do not have deposit insurance backed by a federal agency. For example, U.S. banks have insurance for $250,000 and brokerage firms have it for $500,000 in securities and cash, a situation that does not fit in this case for the unfortunate users of Celsius.
