Celsius’ ETH sales raise cash, eyebrows from creditors

Bankrupt crypto lender Celsius could exit bankruptcy as early as January, if stakeholders agree to move forward on a court approved plan.

Ethereum chain watchers observed the wallets belonging to the debtors have sold close to $250 million in ether in recent months, an amount that roughly matches the expected capital needs of the entity, known as MiningCo, that would emerge from bankruptcy.

The recent developments in the Celsius case reveal a shift in the company’s post-bankruptcy business plans, primarily influenced by regulatory considerations and the need to satisfy creditor claims.

Initially, the restructuring plan for Celsius included not only bitcoin mining but also “staking” fees generated by validating blockchain transactions, and by managing its legacy portfolio of cryptocurrency loans.

This plan was spearheaded by Fahrenheit, also known as NewCo, a consortium led by Arrington Capital. The group was initially selected to lead the reorganized company as part of Celsius’ exit from bankruptcy, and acquired a minority stake in the reorganized Celsius, for $50 million, with the intent to list the new company’s stock on Nasdaq exchange.

However, this initial plan faced scrutiny from US regulators, specifically the Securities and Exchange Commission, which led to a pivot in strategy.

The SEC’s skepticism about some of Celsius’ planned business lines, particularly around crypto lending and staking activities, prompted Celsius to refocus solely on bitcoin mining.

Consequently, Celsius decided to hold back certain assets that would have been transferred to the new company under the initial plan and instead liquidate them as part of winding down its bankruptcy.

Loading Tweet..

Sales of ether (ETH), including Celsius’ recent transactions, appear to be part of that broader strategy, under which Celsius should also distribute approximately $1.98 billion in the form of ether and bitcoin to creditors.

‘Creditors’ losses were crypto losses, not dollar losses’

In a letter to the bankruptcy judge, Tuesday, major creditor Simon Dixon argued that there are no “viable alternatives to the MiningCo transaction before the court,” and therefore it should proceed unhindered.

Dixon, who has personal and business claims against Celsius amounting to about $20 million, expressed concerns that the court could be considering seeking additional approval or consent again from the stakeholders for a revised exit proposal.

He worries that this “re-solicitation” would waste time and money and “could ultimately result in the rug pull scenario happening.”

Loading Tweet..

In the context of bankruptcy litigation, a “rug pull” metaphorically describes a situation where stakeholders expect a certain resolution or benefit from the bankruptcy process, but due to unforeseen complications or delays, these expectations are not met.

For Celsius’ creditors, that could mean they would fail to benefit from the rising market price of crypto assets, Dixon explained in the letter.

“As of the Petition Date, the bankruptcy fixed the value of crypto in dollar terms. However, creditors’ losses were crypto losses, not dollar losses,” he wrote.

As the price of bitcoin rises, ordinary depositors and users of Celsius could expect to recover 100% of their losses in US dollar terms, but any surplus value would, paradoxically, flow to subordinated claims.

“If the price of Bitcoin rises only 25%, or to approximately $54,000/per BTC, the risk will become a reality,” Dixon said.

Loading Tweet..

According to Jed Breed, founder of venture firm Breed, the debtors’ sales of ether may have run their course.

“The ultimate goal is to return to Celsius customers as much funds as possible and I hope whatever direction this bankruptcy goes that happens,” Breed said on X.

A hearing with Chief Judge Martin Glenn is scheduled for Thursday to consider the next steps.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.