Celsius Network Reveals $1.2 Billion Shortfall in Bankruptcy Filing

Crypto lender Celsius Network has revealed a $1.2 billion hole in its balance sheet caused by what chief executive Alex Mashinsky described as “bad” investments and other “unforeseen” losses.

Celsius made the disclosure as it filed for U.S. bankruptcy protection this week after freezing customer funds in June. It is the latest victim of the crypto market crash that has forced two other major companies into bankruptcy in recent weeks.

Mashinsky, who co-founded Celsius in 2017, revealed the extent of the New Jersey-based company's problems in a 61-page court filing on Thursday. It had liabilities of $5.5 billion and assets of just $4.3 billion.

The vast majority of the liabilities, $4.7 billion, were attributed to Celsius users. The filing suggested they could face significant losses and blamed the company's problems on a mix of bad bets, market conditions and a failure to manage its rapid growth.

"The amount of digital assets on [Celsius's] platform grew faster than the Company intended to deploy. As a result, the Company made what, in hindsight, were shown to be poor asset deployment decisions," Mashinsky wrote in the filing.

Celsius was one of a handful of crypto lenders that have pulled billions of dollars worth of crypto assets from ordinary investors in recent years. It promised interest rates of up to 18 percent on certain cryptocurrencies.

Canada's second-largest pension fund, Caisse de dépôt et placement du Québec, and investment firm WestCap led a $600 million equity financing round last year that valued Celsius at $3 billion.

The lender is the third major crypto company to file for bankruptcy, following crypto broker Voyager Digital and hedge fund Three Arrows Capital. All three have been hit by collapsing crypto asset prices and a credit freeze in the market.

Mashinsky on Thursday admitted a series of mistakes that led to losses and detailed investments that left Celsius unable to return money to customers as it suffered a bank run this year.

One was a $510 million loss discovered in 2021 when Celsius tried to reclaim collateral it had pledged to back loans from an undisclosed “private lending platform.”

“The lender was able to provide the . . . collateral in a timely manner,” Mashinsky wrote. About $440 million of that remains outstanding, he added.

Celsius also suffered $100 million in losses when collateral it had pledged to secure a loan from Tether - the stablecoin issuer that is an equity investor in Celsius - was amicably liquidated in recent months.

Mashinsky said about $1 billion of his funds were illiquid because they were earmarked for the company's Bitcoin mining operations or invested in a version of the Ethereum network that has not yet launched.

He suggested that Celsius' recovery plan could include using Bitcoin generated from its mining operations to "address its current cryptocurrency deficit."

In addition to admitting the company's mistakes, he blamed "misinformation" in the media and on social media for encouraging customers to withdraw around $1 billion worth of funds over five days in May.

Mashinsky said Celsius was on track to address its problems as the market turned this year.

“The company believes that it would likely have been successful in the near future had the market remained relatively stable.”