Celsius (CEL-USD) run of misfortune seems to continue this week. The Celsius bankruptcy filing has finally arrived. This makes for the third such filing by a crypto platform since the market crash began weeks ago. This comes even after a string of repayments made throughout the week in an attempt to avoid this fate. However, things aren’t all bad; Celsius says it has no intention of liquidating and ending operations.
As crypto prices tumbled, and the global market capitalization of the industry plummeted, many crypto investment platforms were sent scrambling. Companies like Celsius, Voyage Digital and Three Arrows Capital had taken out huge loans with multiple decentralized finance (DeFi) platforms. In a healthier market, this is a lucrative venture; they could invest the loaned funds in order to multiply their earnings many times over.
After the crash, Celsius found itself missing margin calls from a multitude of lenders. This put it in massive amounts of debt. Cue the uber-controversial withdrawal freeze, meant to help the company preserve its liquidity in hopes the volatility cools. Unfortunately for Celsius’ many users, though, this freeze means one has no access at all to their funds.
And one can’t forget the lawsuit plaguing the platform as well. Atop all of this debt and a mob of angry users who have not been able to withdraw their assets for a month now, KeyFi is suing the company. It alleges that Celsius refused to honor an agreement over KeyFi’s payment for profits garnered through investing Celsius assets. The court documentation also includes claims that Celsius is a Ponzi scheme, using new investor money to pay early backers.
Celsius Bankruptcy Filing Comes Just After Full Debt Repayment
Wednesday night saw a devastating blow in the form of a Celsius bankruptcy filing. Indeed, the company is filing for Chapter 11 bankruptcy protection, citing insolvency, even after a long debt repayment campaign investors have been following throughout the week.
With over 100,000 creditors all over the world, Celsius has a lot on its plate if it hopes to navigate and overcome its bankruptcy. It spent the last week beginning this long repayment process, beginning with three major DeFi lending platforms in Aave (AAVE-USD), Compound (COMP-USD) and MakerDAO (MKR-USD). Celsius had over $800 million in debt to these three alone, and many hundreds of millions of dollars in collateral.
After aggressively paying off these loans, Celsius has freed up the nearly $1 billion in collateral held by the three platforms. It also hired a new legal team to help it try to avoid bankruptcy proceedings. Unfortunately for Celsius, and its many users in crypto asset purgatory, this was not enough to keep it from filing for bankruptcy. It is the third crypto company to file for bankruptcy as a result of the market crash. This comes after Voyager Digital’s and Three Arrows’ filings last week.
Being that it filed for Chapter 11 bankruptcy, Celsius isn’t going to liquidate its assets and cease operations. Chapter 11 bankruptcy is meant to help a company reorganize its business in order to become profitable again.
However, it will need an awfully robust plan if it is to repay its thousands of other creditors. Celsius’ largest debts include $81 million owed to Pharos USD Fund, as well as $13 million owed to Alameda Research. Considering the scope of its remaining debt, its new legal troubles from KeyFi and the extraordinarily low success rate of Chapter 11 filings, Celsius faces a lot of headwinds.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.