Celsius Owes $7 Billion to Users But Doesn’t Have Money to Pay Them

Celsius Owes $7 Billion to Users But Doesn’t Have Money to Pay Them
Celsius co-founder and CEO Alex Mashinsky in an April 2022 promotional YouTube video from the company that's since been deleted. (Screenshot: YouTube)

Celsius, the crypto trading platform that halted all withdrawals a month ago and filed for bankruptcy yesterday, has a $US1.2 ($1.76) billion sized hole in its balance sheet, according to a bankruptcy filing and new report from the Financial Times. What does that mean for users? You’re probably not getting all your money back, if you see some at all.

Celsius lists $US5.5 ($8) billion of liabilities in its bankruptcy filing, $US4.7 ($6.91) billion of which is owed to Celsius users. The problem is that Celsius lists just $US4.3 ($6.3) billion of assets, many of it illiquid, and that’s even assuming those have been calculated properly. A large part of Celsius’s holdings is in its own crypto token, also known as Celsius, which has taken a nosedive in the past year. And roughly $US1 ($1.47) billion of assets are tied up in the company’s bitcoin mining centre.

Celsius was notorious for offering absurdly high interest rates on crypto — as high as 18% in some cases — but it has to make increasingly risky bets to pay those off. Where did all the money go? Celsius explains in the filing that the company made bad gambles.

“Some of Celsius’ crypto is tied up in long term and illiquid crypto deployment activities; some of Celsius’ crypto assets have been loaned to third parties; and some of Celsius’ crypto assets have been pledged in support of borrowings or sold to generate cash used to acquire Bitcoin mining equipment and the GK8 storage business,” the filing reads.

“Because of the variety of asset deployment strategies the Company engaged in, including the terms and length of time those strategies ‘lock’ the assets, and due to the drop in value of digital assets, Celsius was unable to both meet user withdrawals and provide additional collateral to support its obligations,” the filing continues.

The bankruptcy filing notes that users who signed up for Celsius all agreed to terms of service that allowed Celsius to just stop withdrawals at any time. And it’s honestly a bit shocking to see it all laid out in the bankruptcy paperwork in such stark terms:

The terms of use that form the basis of the contract between Celsius and its users explicitly state that in exchange for the opportunity to earn rewards on assets, users transfer “all right and title” of their crypto assets to Celsius including “ownership rights” and the right to “pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use” any amount of such crypto, whether “separately or together with other property”, “for any period of time,” and “without retaining in Celsius’ possession and/or control a like amount of [crypto] or any other monies or assets, and to use or invest such [crypto] in Celsius’ full discretion.” A version of this statement has been in every version of Celsius’ “Terms of Use” since 2018. And since 2019, the Company has been clear that it might “experience cyber-attacks, extreme market conditions, or other operational or technical difficulties which could result in immediate halt of transactions either temporarily or permanently.”

Did you catch all that? You weren’t buying crypto and having Celsius hold it for you. You were transferring “right and title” to your crypto to the company.

One thing you won’t see in the bankruptcy filings is how much Celsius executives cashed out of their own crypto token over the past few years. Celsius co-founder and CEO Alex Mashinsky sold about $US44 ($61) million worth of Celsius crypto since the company was founded, according to a recent report by the Financial Times.

Where does all of that leave users? Nobody knows for sure. But they’re in a long line of creditors, all hoping to salvage something from the Celsius mess. Oddly enough, Celsius says it wants to reorganise and bounce back as a company after all of this is done. But it’s tough to imagine anyone wanting to invest their money in a place that just made so many billions of dollars disappear.