After a significant decrease in stock price this year, the Celsius corporation is the most recent to initiate legal action.
In the midst of the massive sell-off in cryptocurrencies this year, digital asset companies such as Celsius Network have filed for bankruptcy. It is known as one of the world’s largest Bitcoin lenders.
About a month after it froze customer assets and trapping billions of dollars across more than a million accounts. The Hoboken, New Jersey-based corporation filed for Chapter 11 bankruptcy in federal court in New York.
Lenders Crypto Loans
In 2022, the value of cryptocurrencies has fallen, putting lenders offering high-yield crypto loans in a difficult financial situation due to consumer redemptions and cash shortages. Some companies responded with the crisis by stopping their customers from making withdrawals, by obtaining money at low costs, or by commencing bankruptcy or reorganization procedures.
To “stabilize its business” and implement a restructure “that maximises value for all stakeholders,” Celsius has stated that it will be filing for Chapter 11.
Today’s filing follows the tough but necessary decision by Celsius last month to restrict withdrawals, swaps, and transfers on its platform to stabilize its business and protect its customers, a special committee of Celsius’s board of directors said in a news statement.
Celsius Deposit
A deposit run was halted, according to Celsius, by imposing withdrawal limits. Customers that withdrew their funds promptly would have received a complete refund. It is finished with the declared business. While those who withdrew funds later would have been left with claims that were less liquid and questionable.
Celsius CEO Alex Mashinsky commented, this is the appropriate option for our community and company.
Companies like Celsius received deposits from consumers. After that they lent the money out at interest rates that were higher than what they had earned. Celsius’s high borrowing rates and convinced funders that the company posed no danger. A Financial Times investigation discovered, however, that Celsius had upped its financial risks in recent months as demand for loans from institutional investors had fallen.
Following this month’s bankruptcy filing by heavily leveraged crypto hedge fund Three Arrows Capital, numerous significant digital lenders have suffered a similar fate.
Other Crypto Lenders
Voyager Digital, another prominent bitcoin lender, has recently declared bankruptcy. Some businesses have avoided collapse by rescuing themselves by selling assets at fire sale prices.
Despite an original estimate of $4 billion, on July 1st, BlockFi negotiated a rescue agreement. It is with bitcoin trading exchange FTX that valued the lender at up to $240 million. In a similar vein, the failure of Celsius would leave investors in venture capital with huge losses.
It raised $750mn from WestCap and Quebec-based pension fund Caisse de dépôt et placement du Québec in late 2021. At a valuation of more than $3bn. Celsius’s legal representation comes courtesy of Kirkland & Ellis, while its financial guidance comes courtesy of Centerview Partners. Celsius has recruited Alvarez & Marsal, the consulting company best recognized for its work in dismantling the failed investment bank Lehman Brothers in the wake of the 2008 financial crisis, as its restructuring counsel.
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