100 Degrees "Celsius" and Boiling: Follow-up of the Fall of Celsius

It has been more than a month since Celsius, the once crypto lender giant, caught the entire industry off guard with their announcement to "temporarily" suspend all client withdrawals, swaps and transfers. The beleaguered company has been battling insolvency during the whole time. In this month, Celsius officially filed for bankruptcy under inflationary pressures and extreme market volatility, making it the third major crypto company that went bankrupt in July, following Three Arrows Capital, a crypto hedge fund​, and Voyager Digital, another crypto lender.

In this article, Fazzaco reviews the early signs before Celsius' crisis, and the progress afterwards until recent days, and see if this boiling pot is going to keep the 100 degrees "Celsius".

Before everything went south

Announcing on April 12 that its U.S. platform would start holding non-accredited investors' coins in custody, where investors would no longer be able to add new assets and receive rewards on the platform, Celsius displayed its first signs of trouble.

Investors were informed by the company that there will be modifications to the goods it offered in the U.S. as a result of continuing discussions with U.S. regulators.

Then, everybody knew what happened to LUNA/UST in May. Both LUNA and UST plummeted at the same moment, in what observers have dubbed a "death spiral", causing a sell-off and a crisis of trust across the cryptocurrency industry. Fazzaco has published a timely article on the crash in May​. Later, in its bankruptcy proceedings, Celsius blames "the domino effect" of LUNA's failure for its liquidity problems.

A month into the Celsius Crisis - Being acquired? Restructuring? Dealing with regulators? Ex-employee accuses?

Celsius announced the suspension of client withdrawals, swaps and transfers on June 12, fueling the rumors on the increasing insolvency issue faced by the platform. Then, there were stories closely following regarding Celsius being offered the chance to be acquired, restructuring and slapped by different regulators.

E.g., on June 13, another crypto lender Nexo said it was preparing an offer to buy certain assets from rival Celsius, in particular its collateralized loan portfolio. Celsius later issued an announcement only to turn down the offer. It is worth noting though, Nexo signed an indicative term sheet with Vauld​ on July 5, another lender, and plans to acquire it 100%.

On June 16, Fazzaco learned that Goldman Sachs was looking to raise $2 billion from investors to buy up distressed assets from troubled crypto lender, according to two people familiar with the matter. The proposed deal would allow investors to buy up Celsius' assets at potentially big discounts in the event of a bankruptcy filing, the people said.

On the other hand, rumors were saying that Celsius was hiring attorneys to solve its financial problems. First, it was Akin Gump Strauss Hauer & Feld LLP, according to a Wall Street Journal report​. Then, they turned to Kirkland & Ellis LLP. for restructuring counseling.

Not only that, Celsius got multiple slaps from regulators too. Soon after the June announcement, several U.S. states, including Texas and Alabama, started investigating Celsius' decision to halt customer withdrawals​.

On July 13, the Department of Financial Regulation (DFR) in Vermont issued a warning against Celsius. They believed that Celsius has been engaged in an unregistered securities offering by offering cryptocurrency interest accounts to retail investors. Celsius also lacks a money transmitter license. This means that until recently, Celsius was operating largely without regulatory oversight.

Only to make things worse, Jason Stone, a former employee of the lender, accused the company of running a Ponzi scheme​ resulting in freezing customer funds on July 7.

Bankruptcy filing and what now?

On July 13, Celsius Network's mining unit, which said in March it planned to go public, filed for Chapter 11 bankruptcy protection, along with its parent company​, in the U.S. Bankruptcy Court for the Southern District of New York.

"Today's filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps and transfers on its platform to stabilize its business and protect its customers," the company wrote in a statement. "Without a pause, the acceleration of withdrawals would have allowed certain customers – those who were first to act – to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery."

Fazzaco will keep following up the bankruptcy case of Celsius closely.