• Celsius reportedly wants users to activate “HODL mode” to win an argument with lawyers
  • Withdrawals and transfers on the platform have been frozen since June 12

Embattled crypto lender Celsius Network is hoping that a show of support from its users will save it from bankruptcy.

Celsius, dogged by a liquidity crisis for weeks, has been resisting guidance from its own lawyers to file for Chapter 11 bankruptcy, The Block reported on Monday, citing people familiar with the matter.

Under a Chapter 11 bankruptcy, a court helps a business restructure its debt and obligations while it continues to operate — it is also among the most expensive of bankruptcy proceedings.

In a bid to win an internal argument with its lawyers, Celsius now wants to prove that most users would prefer the company dodge bankruptcy altogether. 

Users can reportedly demonstrate their support by activating “HODL Mode” in their Celsius accounts — a security feature for customers who don’t wish to withdraw or transfer funds for an extended period.

Celsius has blocked withdrawals and transfers on the platform since June 12, but users can still display trust in the network by initiating the HODL feature, the report said. Despite withdrawal restrictions, Celsius has continued to receive some client deposits.

The company is said to be unable to publicly announce its stance on the matter due to legalities. CEO Alex Mashinsky, who is currently in the US, reportedly isn’t able to comment on the firm’s position either.

Celsius’ situation initially sparked fears the rout might affect other companies in the crypto industry in an already tough market environment. Rival BlockFi was struck by liquidity concerns shortly after Celsius as insolvency rumors swirled around crypto hedge fund firm Three Arrows Capital.

“We are experiencing the biggest crypto crash in history,” Louis Schoeman, managing director at Forexsuggest, said. “With massive inflation data and the semi-collapse of the Celsius network driving the downward spiral, I think only the best fundamentally strong crypto projects will survive this bear market.”

To explore potential financing options, Celsius has reportedly hired banking giant Citigroup, law firm Akin Gump Strauss Hauer & Feld, and management consultants from Alvarez & Marsal.

High yield, high risk

Launched in 2017, Celsius became popular among retail investors for paying lucrative interest rates on crypto as high as 18.6%. The interest rate is earned by allegedly lending cryptocurrency to institutional investors and through decentralized finance protocols. 

Celsius would’ve had to take on severe risk to offer such high returns in a low interest rate environment.

Data on its website, which calls on users to “Borrow like a Billionaire,” shows the firm lent out more than $8 billion to clients and held nearly $12 billion in assets under management as of May.

“If Celsius is insolvent, it will be a harsh hit to the industry, particularly in terms of the trust of retail investors in the industry alongside a potential contagion across the industry,” Mads Eberhardt, cryptocurrency analyst at Saxo Bank, said.

Celsius’ CEL token currently changes hands for around $0.74, having lost half of its value over the past week, according to data from Blockworks Research. CEL plunged to $0.24 just after it froze withdrawals — 97% below its record high of $8.05 posted one year earlier.

The troubles at Celsius means the US could soon provide more clarity on regulation towards custodial providers and lenders, said Marcus Sotiriou, analyst at digital asset broker GlobalBlock, in hope of bringing more stability to the crypto space. 

Celsius didn’t immediately return Blockworks’ request for comment.

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  • Blockworks
    Shalini is a crypto reporter from Bangalore, India who covers developments in the market, regulation, market structure, and advice from institutional experts. Prior to Blockworks, she worked as a markets reporter at Insider and a correspondent at Reuters News. She holds some bitcoin and ether. Reach her at [email protected]orks.co.