Well, it finally happened. About a month ago, rumors began to surface that Celsius, the massive crypto lender, was insolvent. Shortly after those rumors became the talk of the town, Celsius froze withdrawals. After a few weeks of centralized exchanges freezing withdrawals and desperately hunting for bridge funding, we now know that freezing withdrawals usually doesn’t mean funds are tight–it means the funds are gone.
FTX, Sam Bankman-Fried, and Alameda research, the money spitting three headed hydra of crypto and defacto lenders of last resort for the crypto market, apparently met with the Celsius team and decided not to buyout (or bailout) the company. This was reportedly due to a $2B hole in their balance sheet, largely due to the fallout from Terra (UST)/Luna and its impact on Three Arrows Capital.
About two weeks ago, a new wave of rumors came out claiming that Celsius had tapped advisors to help them through the bankruptcy process. But from there, things actually seemed to be improving. They company paid $60M on their Bitcoin loans, bringing down their on chain BTC liquidation price to $5k, and just a few days ago they paid another $113M. This left their on chain debt at $123M.
It’s important to note that we do not know what their full balance sheet looked like, we only know their on chain portfolio. That being said, Sam Bankman-Fried has been eagerly shopping for cheap acquisitions, so I’m inclined to think that he would have gotten involved if it was only what we saw on chain. Sam Bankman-Fried’s Alameda Research is listed as one of the creditors, for a value of $12M.
Today it was announced that Celsius has started the process of filing for Chapter 11 bankruptcy. It’s not clear what this will look like for individuals who have money deposited with Celsius–in the best of outcomes, people will get some portion of their deposits back. In the worst scenario, these deposits will be viewed as Celsius’ own funds. Celsius says they have $167M in cash reserves to support what comes next.
Celsius positioned itself as the crypto alternative to a bank with phrases like “unbank yourself” and claiming they used “military grade security” and “next-level transparency.” A lot of the blame for the current situation is being pushed down to Three Arrows Capital for overlevering itself and being irresponsible, possibly even fraudulent. Others push it down to LUNA for ignoring massive, well known, security holes.
Let’s be perfectly clear: Celsius did this to themselves. They positioned themselves as the least risky option while simultaneously not engaging in appropriate risk management. This lack of risk management is what will likely cause some 1.7M people to lose money.