The State of Celsius – Objections, Acquisitions, and Untimely Withdrawals

Slowly but surely, progress is being made with the situations involving battered lending platforms Voyager and Celsius.  Only last week, it was announced that digital asset exchange FTX put forth a winning bid of $1.4B to purchase assets held by Voyager.

Where does this leave Celsius though?  The following are a few tidbits from recent days as the situation continues to evolve.

Objections All Around

In early September, Celsius filed a motion that if successful would see it sell off existing stablecoin holdings in an attempt to cover on-going operational costs and pay creditors.  While many investors may support the idea, regulators in the United States have a more skeptical perspective.  Following the motion, regulators in both Vermont and Texas filed objections, only to now be joined by the Department of Justice.

In its objection, which was put forth by DOJ trustee William K. Harrington, it is stated that “The Motions are premature and should be denied until after the Examiner is filed”.  It notes that the belief that such a move is premature is predicated on a lack of understanding the following,

• Debtors' cryptocurrency holdings
• relationship of the Debtors' cryptocurrency balance sheet to the cryptocurrency deposited by its various different groups of creditors
• transfers of cryptocurrency between and among different types of accounts

While it may be disheartening to certain investors if the motion put forth by Celsius is denied, there is clear logic in what the DOJ is proposing.  This situation involves hundreds of millions of dollars.  To act prematurely, without a full understanding of balance sheets, etc., would be nothing short of folly.

Pennies on the Dollar

As previously indicated, FTX was recently announced as the high bidder in an attempt to acquire remaining assets held by Voyager.  Many are now beginning to believe that Celsius will find itself soon travelling a similar road, with FTX potentially scooping up its assets for “pennies on the dollar”.

This stance was recently shared by Simon Dixon, Founder of BnkToTheFuture, and is based on his belief that regulators will stifle any reorganizational plan put forth by the company – something being seen already through the objections by the DOJ discussed above.  If this comes to be true, Dixon believes that it, “…will drive the vultures into a bidding process where the vultures will try & buy the assets we paid for without our consent & FTX & TradFi will give us pennies on the dollar”.

While the idea of investors in Celsius, like BnToTheFuture, receiving pennies on the dollar on their investments may strike fear in many, the sentiment did not go unnoticed by FTX itself.  In an attempt to assuage the situation and Dixon himself, Sam Bankman-Fried, CEO of FTX, took to twitter with the following statement.

Source: Twitter @SBF_FTX

As it stands, depending on perspective, FTX is being viewed as either a saviour of struggling companies during trying times, or as Dixon would put it, a ‘vulture', feeding off the scraps of those dead and dying.  Only time will tell which narrative is true.

A Suspicious Cashout

Adding another wrinkle to the situation, reports have recently surfaced which indicate Celsius Network founder Alex Mashinsky withdrew $10M in the weeks preceding the freezing of customers assets by the platform.

While Celsius representatives have shared that this was done with the purpose of paying taxes, the timing has unsurprisingly resulted in certain skepticism, with many believing the Mashinsky – who was also CEO at the time – knew about the company's situation and its pending plans to freeze assets.

Celsius Network spoke to the Financial Times, clarifying that, “…In mid to late May 2022, Mr Mashinsky withdrew a percentage of cryptocurrency in his account, much of which was used to pay state and federal taxes. In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totalled what he withdrew in May…He continues to be committed to working with and uniting the community around a recovery plan that will maximise coin and liquidity for all.”

Regardless of whether or not this is true, there is a potential avenue that would allow for the transaction to be reversed – something which is made possible in the U.S. during bankruptcy proceedings in an attempt to make existing creditors whole.