Bitcoin price: Crypto lender Celsius owes users $4.7 billion, bankruptcy filing reveals

According to a declaration for Chapter 11 bankruptcy earlier this week, filed by Mashinsky at the US Bankruptcy Court for the Southern District of New York, of the US$5.5 billion of Celsius’ total liabilities, more than $4.7 billion is owed to users.

The UK-based company pays interest on cryptocurrency deposits, loans them out and also sells its own token, CEL, but froze all activities in mid-June after a particularly rough week for cryptocurrency.

According to business publication Quartz, “Celsius operates like an unregulated bank, enticing customers with staggeringly high rates for deposits of cryptocurrencies, and then loaning out those deposits to other customers”.

The platform relied mostly on bitcoin to stake its fortune — and after the token plunged drastically last month, the crypto loan giant found itself unable to cough up money to pay back its debts, prompting it to take the unprecedented step of pausing all withdrawals on the platform three weeks ago.

The broader cryptocurrency market has shed $US2 trillion ($2.9 trillion) since its peak in November last year while bitcoin’s price has fallen 40 per cent in the past 12 months. The bitcoin price was AU$31,566 today.

In the 61-page court filing, Mashinsky attributed the financial troubles to market conditions, poorly thought out bets, and mismanagement of the lender’s rapid growth.

“The amount of digital assets on the platform grew father than the company was prepared to deploy,” he stated.

“As a result, the company made what, in hindsight, proved to be certain poor asset deployment decisions.”

In a blog post at the time, the company warned it was “pausing” all withdrawals and transfers between accounts, adding: “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, swap, and transfers between accounts.

“We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations.”

But the platform’s terms of use have raised questions about whether users may be able to recover their cryptocurrency deposits or collateral — with Mashinsky saying the basis of the contract between Celsius and its users explicitly stated that the company has ownership rights over customer deposits, as well as the right to lend, sell, transfer or use them for any period of time.

He tweeted two days later that the Celsius Network was “working non-stop” to resolve the issues.

“We’re focused on your concerns and thankful to have heard from so many,” he said.

“To see you come together is a clear sign our community is the strongest in the world. This is a difficult moment; your patience and support mean the world to us.”