Crypto Lender Celsius Files for Bankruptcy. What Happens to Customer Deposits?

“This is the right decision for our community and company,” said Alex Mashinsky, Celsius co-founder and chief executive, in a statement. “I am confident that when we look back at the history of Celsius, we will see this as a defining moment.”

Celsius, which at one time offered yields of nearly 20% on crypto deposits, froze customer withdrawals, swaps, and transfers last month as its business model came under pressure in the wake of a drawdown in digital asset prices. The breakdown at Celsius was a body blow to the world of crypto lending, which had risen to become a key part of the industry.

The market capitalization of cryptocurrencies has fallen to less than $900 billion from nearly $3 trillion eight months ago, with Bitcoin recently capping its worst quarter in more than a decade as the industry plunges into a “crypto winter.”

Celsius said that it has filed with the court to continue some operations as normal, which includes paying employees and continuing their benefits. The company is not currently requesting authority to allow customer withdrawals — that issue will be addressed through the Chapter 11 bankruptcy process.

Members of a special committee of Celsius’s board said that the bankruptcy filing follows the “difficult but necessary decision” to freeze customer accounts in June.

“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,” the committee said in a statement.

Write to Jack Denton at jack.dentondowjones.com