Celsius Bankruptcy Details $1.2 Billion Hole In Balance Sheet
Celsius files for Chapter 11 bankruptcy. Balance sheet shows a gap of $1.2 billion and reckless behavior with customer deposits.
Celsius Bankruptcy Shows Reckless Behavior
Read previous Celsius issues and updates here:
July 7 Exchange Outflow All-Time High And Celsius Collateral Update
June 14 Celsius And stETH - A Lesson On (il)Liquidity
June 13 Celsius Exchange Halts Withdrawals: What Went Wrong?
Today’s issue will shed some light on the details of the Celsius situation following the filing of Chapter 11 Bankruptcy protection yesterday afternoon. CEO Alex Mashinsky followed up the filing with an official statement released today.
In the statement, among many other interesting notes, it was revealed that the firm has a $1.19 billion hole in its balance sheet officially.
Source: Celsius Bankruptcy Court Document
Unofficially, the numbers are far worse, with the most obvious being the $600 million worth of CEL token the company claims as an asset.
Egregiously, the current market cap of the CEL token is $170 million, with the highest figure it reached over the most recent week being approximately $240 million. This isn't even accounting for the liquidity and slippage dynamics. The statement also claimed that in March of 2022, the Celsius balance sheet went negative in terms of customer liabilities (deposits) relative to the firm’s assets.
Source: Celsius Bankruptcy Court Document
The firm also engaged in collateralized lending with customer deposits to invest in a mining operation through a $750 million credit line.
“In addition to its financial and trading operations, the Company, through Mining, operates one of the largest crypto mining enterprises in the United States. To expand Mining’s operations, and thus generate a greater yield, effective as of November 1, 2020, and through 2021, CNL entered into an intercompany revolver facility with mining for up to $750 million.
“The loan is a long-term investment in Mining that is expected to generate significant yield for the Company. As explained in Part I of this Declaration, mining is the process by which new bitcoin is minted. The Company believes that Mining’s operations will, over time, generate sufficient assets to repay its loan to CNL and generate Bitcoin that will provide revenue for the Company in the future.
“Currently Mining owns 80,850 rigs with 43,632 in operation, and prior to the Petition Date, had an investment plan to operate approximately 120,000 rigs by end of 2022.
Mining is currently generating approximately 14.2 bitcoin per day for the past seven days and generated a total of 3,114 bitcoin during 2021. For 2022, it is projecting to generate 10,118 bitcoin. For 2023, assuming at least 110,000 rigs will be online, Mining is projecting to generate approximately 15,000 bitcoin.”
Celsius also admitted to taking customer funds, and speculating directionally in various futures instruments. A proper bank/lending desk will be sure to match customer liabilities with assets, whereas the likes of Celsius were simply speculating/gambling.
“Swing Trading. Similar to Market Making, this strategy involved Celsius holding both long and short futures positions, but with an imbalance between the amount of long and short options Celsius held. This allowed Celsius to benefit from its experience being an active participant in the futures market. Since this trading activity was not market neutral, Celsius had set narrow risk limits on such activity which were also accompanied by strict stop-loss mechanisms.”
We haven’t even mentioned yet the 35,000 ether that went missing because private keys were lost. The full filing document can be read here and the issues run deep. In short, among other things, Celsius took customer funds to:
Speculate on the price of various crypto assets
Collateralized loans to invest in their mining operation
Farmed “yield” on unsustainable yield products
The Chapter 11 bankruptcy filing is no surprise in this light, and the gross negligence of Celsius and other actors in the broader bitcoin/cryptocurrency space will surely bring a large amount of new regulations to centralized platforms.
The reason for our extensive coverage and documentation of the “contagion” situation in particular is due to the lasting implications of the fallout. Due to the sheer scale, scope, and reckless nature of the mismanagement of customer funds, along with the layers of obfuscated leverage, billions of dollars of investors funds have been lost and asset exchange rates have collapsed.
Only with proper recognition and underlying change of the inherent problems that led to the fallout can the future be built on more sustainable ground.
In similar news, in the recent Celsius Chapter 11 Bankruptcy filing, a list of the firm's creditors was released. The largest creditor, identified as Pharos USD Fund SP, has several key ties to industry leading firm Alameda Research, which has been in the middle of the contagion in recent weeks, as first reported by Bloomberg.
While Alameda denied any ties to Pharos, the key question is who, if any, are the potential counterparties of Pharos (or other potentially insolvent firms) that have yet to float to the surface?
The more documents and filings that come out, the more it is revealed just how interconnected the industry was/is between counterparties. With this in mind, we’ll repeat our belief that the full impacts of the recent crypto native credit crash have likely not been known or entirely felt at the current moment.
ICYMI: Read our June Contagion Report. In tomorrow’s issue, we will be covering continued impacts of the strengthening U.S. dollar, weakening foreign currencies and the latest turnover in commodities.
Thank you for reading Bitcoin Magazine Pro, we sincerely appreciate your support! If you found this article useful, please leave a like and let us know your thoughts in the comments section.
I think y’all should write about bitcoin entrepreneurs every once in a while and inspire us with what they’re building