Bankrupt CeFi lender Celsius intends to pay back its debts with income from Bitcoin mining. Celsius also believes most of its customer deposits actually belong to them. Apparently, CeFi investors don't read the Terms of Service.
A couple months ago, there were rumors that Celsius was insolvent. This proved true on June 12, when Celsius froze customer withdrawals. A month later, Celsius filed for Chapter 11 bankruptcy. But that's all pretty standard for a dead CeFi lender. Celsius is getting weird.
Bitcoin Mining to the Rescue?
Celsius apparently owns a Bitcoin mining subsidiary that is not running yet. On July 18, a Manhattan bankruptcy court allowed Celsius to spend ~$5M to finish construction on its Bitcoin mining facility and pay customs duties on its mining rigs. Celsius' lawyer, Patrick Nash, claims Celsius can use the proceeds from mining Bitcoin to pay back its customers. It's unclear if Celsius' Bitcoin mining operation will even get online–let alone generate enough income to dig itself out of a $1.2B hole. Bitcoin mining operations that aren't owned by failed lending firms are struggling with high energy prices, so it's hard to see how Celsius succeeds here without a bull run.
Naturally, Celsius may not even own this Bitcoin operation by the time it's up and running. A group of Celsius investors in the United Kingdom claim they should receive the mined Bitcoin. Considering the number of investors Celsius isn't paying back, there will likely be more groups trying to get their hands on Celsius' Bitcoin. The same Bitcoin they're planning to mine with rigs stuck in customs inside a building that isn't built yet.
Terms of Service Sneak Attack
In the same bankruptcy hearing, Celsius also claimed that it shouldn't have to pay back the majority of its retail investors. According to Nash, Celsius sneak attacked its retail investors in the Terms of Service. Once CeFi enthusiasts put their money into Celsius, it became property of Celsius, allowing the company to "use, sell, pledge, and rehypothecate" investor assets. Yikes. It's not clear if this is actually binding, but it is hilarious.
David Silver, an attorney who isn't involved in the case but can read, explains "Celsius says that anyone in the EARN program has no crypto that belongs to them (i.e., stop thinking of it as *your* crypto). Celsius is the owner of the crypto assets. Most of the assets in Celsius came in through the EARN program and is part of the estate."
So we have an insolvent CeFi lender with a Bitcoin mining plan that's unlikely to drive meaningful revenue, and it's unclear if that revenue even belongs to Celsius.