Week In Crypto: Celsius Bankruptcy, MtGox’s Hacked Bitcoin Back On The Market

July 15, 2022
After suspending all customer withdrawals for just over a month, crypto lending platform Celsius has now become the latest digital asset business to file for bankruptcy in the US.

After suspending all customer withdrawals for just over a month, crypto lending platform Celsius has now become the latest digital asset business to file for bankruptcy in the US.

On Wednesday (July 13), Celsius announced that it has initiated voluntary Chapter 11 bankruptcy proceedings in the Southern District of New York.

In a press statement, Celsius said the bankruptcy filing will allow it to stabilise its business and implement a “comprehensive restructuring” that it says will maximise value for all stakeholders.

Alex Mashinsky, co-founder and CEO of Celsius, said of the restructuring: “I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”

To ensure a smooth transition into Chapter 11, Celsius has filed a series of “first day” motions that should allow it to continue to operate as close to normal as possible, although this does not include the authority to resume customer withdrawals. This will be addressed during the Chapter 11 process.

In the meantime, Celsius said it has $167m in cash on hand to cover its expenses.

A Celsius bankruptcy was a move that was expected by many observers, including VIXIO, which reported on Celsius’ capital consolidation last week and its hiring of bankruptcy attorneys as directors.

One of those attorneys, David Barse, is credited by Celsius for providing “additional leadership and expertise” to the company ahead of its restructuring.

Barse is the founder and CEO of XOUT Capital, an index company that specialises in informing investors on which companies “not to own” ("XOUT" meaning "struck out").

According to court filings seen by VIXIO, Celsius’ single largest creditor is Cayman Islands-based firm Pharos USD Fund, to which it owes $81m.

Most of Celsius’ other large creditors are unnamed in the court documents, but several large crypto businesses are present and accounted for.

Alameda Research, for example, the trading firm founded and owned by FTX’s Sam Bankman-Fried, is owed $12.7m by Celsius.

As covered in VIXIO’s previous Week In Crypto, Alameda Research has acted as a vital lifeline for BlockFi, a rival lending platform, by providing it a $400m credit line with a takeover option for $240m.

This is likely the only reason that BlockFi has been able to escape bankruptcy. On Monday (July 11), BlockFi CEO Zac Prince tweeted a “public service announcement” to all journalists and commentators, asking them to “stop putting BlockFi and Celsius in the same bucket”.

Voyager unveils rescue plan

Another lender that Prince asked to be distanced from is Voyager, which has frozen customer withdrawals since July 1 and filed for Chapter 11 bankruptcy last week.

This week, Voyager updated its customers on the status of their trapped US dollar and crypto-asset deposits as it embarks on a restructuring plan.

On Monday (July 11), Voyager said it is working to restore customer access to US dollar deposits, subject to a reconciliation and fraud prevention process.

It added that these dollars are held in a designated For Benefit of Customers (FBO) account at Metropolitan Commercial Bank of New York (MCB), and are protected up to a maximum of $250,000 per head by the Federal Deposit Insurance Corporation (FDIC).

The bad news for Voyager customers, however, is that none of their crypto-assets are covered by FDIC insurance, as is the case with all crypto-lending platforms.

At current prices, Voyager said it has about $1.3bn worth of crypto-assets on its platform, plus claims against Three Arrows Capital (3AC), a similarly bankrupt crypto hedge fund, of more than $650m.

Once finalised, Voyager said its reorganisation plan will be put to a vote, in which all customers are invited to take part.

“We put together a restructuring plan that would preserve customer assets and provide the best opportunity to maximise value,” Voyager said in a statement.

“In addition, the company is pursuing various strategic alternatives to evaluate the value of the standalone company compared with a third-party investment or sale.”

MtGox bitcoin threat

Alongside the industry’s newer bankruptcies, another potential threat currently facing the crypto markets stems from MtGox, a Japanese crypto-exchange that declared bankruptcy in 2014.

In February 2014, MtGox lost about 850,000 bitcoin, worth $500m at the time, in what is still one of the largest crypto hacks to date.

Some of that bitcoin was subsequently recovered, however, and is now in the hands of MtGox’s bankruptcy trustee.

The trustee holds just under 142,000 bitcoin, which is currently worth almost $3bn, and has indicated that it will begin distributing it to MtGox’s creditors, after it officially closes its doors to new claims and transfers at the end of August.

Were this enormous tranche of bitcoin to hit the market all at once, it could cause further price drops that would have an impact on already struggling crypto businesses such as Celsius, Voyager and others, whose largest crypto-asset holding is typically bitcoin.

Coinbase’s bitcoin holdings, for example, currently make up 42 percent of its total assets, according to a study published this week by TradingPlatforms.

The crypto markets have weathered some particularly large spot bitcoin sales in recent weeks and months, but it remains to be seen how much a MtGox mega-sale would affect an already precarious market.

One industry figure who appeared to have dismissed the threat of a MtGox fire-sale is Changpeng Zhao, CEO of Binance.

In a since deleted tweet, Zhao said: “Just ask yourself, if you got into crypto and had BTC from 2014, will you be in a hurry to sell now? New joiners vs OG [old gangster] mentality.”

Iran sanctions allegations

Binance has hit the headlines this week for other reasons, most notably for alleged violations of US sanctions against Iran.

In November 2018, Binance announced that it had banned Iranian citizens from using the exchange.

However, according to seven Iranian traders quoted by Retuers, Binance continued to serve customers in Iran until September 2021, after which know your customer (KYC) checks were tightened.

Zhao did not take kindly to the story or Reuters’ framing of it. In tweets posted several hours after the story was published, he noted that the headline of the article, “Binance served crypto traders in Iran despite U.S. sanctions”, did not mesh with its content.

“Binance banned Iranian users after sanctions, seven got missed or found a workaround, and they were banned later anyways," he suggested the article should have read.

Six hours later on July 11, Zhao seemed back in high spirits again, as he posted a selfie at a dinner with President Emmanuel Macron and several hundred others in France.

Binance has been on a licensing win streak in Europe over the last few weeks and months, with successful applications in Italy, France and most recently Spain.

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