- The judge pointed to concerns the mining business won’t be immediately profitable
- Lender has received multiple bids to help fund its restructuring
Cryptocurrency lender Celsius’ mining business has been a contentious issue during its bankruptcy proceedings, but the firm has received approval to mine and sell bitcoin to support operations.
During the second-day hearing on Tuesday, US bankruptcy judge Martin Glenn expressed concern that the mining business wouldn’t be profitable right away, as the company first needs to make investments that help it run at optimal capacity. But he acknowledged that all said and done, it was the company’s business decision — which bankruptcy courts are loath to reject.
“At bottom, this is a business judgment decision. It may be very wrong, but we will see,” Glenn said.
Celsius has reportedly tamed opposition from its creditors’ committee by amending its proposal to specify that the proceeds from bitcoin sales would be set apart from the company’s cash for operations.
The Department of Justice is still objecting to the plan, however. Before Judge Glenn’s approval, trial attorney Shara Cornell of the DOJ argued the operation wasn’t clear enough to be granted approval.
“What we’re really concerned with in this case is transparency and we don’t have that type of visibility into the mining operations,” she said. “For example, we have no understanding at this point in time what the debtors’ utility-related costs are for running these mining rigs.”
Separately, at the hearing, Celsius said it received multiple cash injection offers to fund its restructuring process. The firm is scheduled to return to court on Sept. 1 for approval on an auction process.
Bigger balance sheet hole, rapid cash burn
Earlier in the case, Celsius said it expects the mining business to be key to its restructuring efforts, after which it got permission to spend $5.2 million on construction and imports related to the business.
Celsius owns 80,850 bitcoin mining rigs, but only half of those are in operation. As of July 13, the company was mining an average of 14.2 bitcoin (~$341,634) per day, a filing showed. It expects to generate 10,118 bitcoin this year, and 15,000 bitcoin next year. Mining is generally affected by bitcoin’s volatility and isn’t always profitable.
Before filing for bankruptcy, Celsius had plans to expand its mining rigs to 120,000 this year. It has previously used bitcoin mining sales to fund business operations and meet an intercompany loan with the parent firm.
As the case proceeds, Celsius’ financial woes are becoming more worrying. After initially disclosing a $1.2 billion hole in its balance sheet, the firm has now said its deficit is actually more than double — at $2.8 billion.
A court document filed Aug. 14 shows it expects to burn cash significantly over the next three months, which would leave it with a negative cash flow of nearly $34 million for this quarter.
Prior to the second-day hearing, Texas regulators and the lender’s official creditors committee raised issues about how Celsius planned to monetize the business.
“The relief that Celsius has asked for is so broad that they could monetize the coins and use the proceeds in any number of ways,” Dan Besikof, partner at law firm Loeb & Loeb, told Blockworks.
But Celsius attorney Ross Kwasteniet said, “whether people agree with it or don’t agree with it, it was our business judgement.”