What happened
The crypto token Celsius (CEL), the primary currency of crypto lending platform Celsius Network, is down 15.5% in the last 24-hour period as of 4:30 p.m. ET. The company is in the midst of bankruptcy proceedings, and recent filings with the court overseeing those proceedings show a pretty ugly balance sheet.
However, Celsius token skyrocketed off of its lows in the last month since the company filed for protection. It seems crypto traders are speculating on some sort of reprieve for the company, although Celsius's business appears to be thoroughly broken at this point.
So what
The news that has the crypto market talking the last two days is Celsius's balance sheet, which was recently submitted to the U.S. Bankruptcy Court for the Southern District of New York. As of July 14, 2022 (the day after Celsius filed for bankruptcy, and about a month after it froze client asset withdrawals), Celsius revealed it had $170 million in cash and another $1.75 billion in cryptocurrency, but user liabilities totaled $4.72 billion (tallying up to a $2.8 billion shortfall).
This compares with $110 million in cash and $14.56 billion in cryptocurrencies on March 30, 2022, offset by $16.54 billion in user liabilities (or a $1.87 billion shortfall). Granted, a roughly equal balance between loans and customer deposits isn't unusual banking activity. However, Celsius never claimed to be a normal bank that holds stable fiat currency. It was dealing with customer deposits and loans denominated in cryptocurrency -- an asset class everyone knows to be extremely volatile in price on a good day.
Basically, an extra dose of banking conservatism on Celsius's part might have gone a long way toward preventing a collapse. Celsius's massive asset balance decline was chalked up to the following:
- User withdrawals: $1.9 billion
- Loans redeemed or liquidated: $1.9 billion
- Crypto liquidated by third parties (notably, Tether): $900 million
- Crypto lost from investments: $100 million
- Crypto market declines: $12.3 billion (Bitcoin was down 59% from March 30 to July 13, 2022)
In a nutshell, Celsius will have completely turned its pockets inside out within months if it isn't able to radically restructure.
Now what
Celsius's plan going forward is to try to stabilize the business while negotiating with creditors, and it thinks it can mine Bitcoin to help with funding. Additional funds might be raised via asset sales. However, if all goes as planned, retail investors who had funds on deposit with Celsius will likely be presented with two options:
- Recover cash, but at a discount to what they had on balance
- Stay "long" in their crypto and hope for the market to turn
Given the dire straits the crypto lender is presently in, neither option looks like a great one. But at the very least there's a plan and some hope for recovery of at least some funds. Stay tuned for more information.
