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Celsius‘ Bankruptcy Proceedings: Who owns the cryptos?

Celsius is a cryptocurrency platform that enables users to transfer their crypto assets and (a) earn rewards on crypto assets and/or (b) take loans using those transferred crypto assets as collateral. Users could deposit cryptos and earn up to 18% interest per year. Shortly before filing for a Chapter 11 voluntary petition on July 13, 2022, Celsius blocked its customers from withdrawing and transferring their crypto assets.

The Chapter 11 proceedings will allow Celsius to continue operating its business as debtor in possession while restructuring. However, the restructuring plan to be proposed by Celsius will be quite difficult to approve by its customers as creditors, since it will be based on the premises that the customers’ cryptos, which are in Celsius’ custody, are considered to be parts of Celsius’ assets.


Controversial Terms of Use

Users of the platform have no access to their funds anymore and – according to the terms of use of Celsius – they may have given up their rights to their cryptos. Indeed, the regulations of these terms of use foresee that by entering into the user agreement with Celsius, the users (i) agree to transfer the title to coins to Celsius and (ii) agree for Celsius to freely use, sell, pledge, and rehypothecate the coins in its own discretion.

It is unclear whether this clause of the terms of use is enforceable. Under the assumption that the bankruptcy court shares Celsius’ understanding of this clause, meaning that the cryptos are part of Celsius’ assets, the users of the platform may be classified as unsecured creditors with the consequence that they will get paid last and pro rata, and that reclaiming their cryptos in kind is excluded.

If, however, the bankruptcy court considers that this clause of the terms of use is not applicable, meaning that users’ cryptos are not part of Celsius’ assets, and if Celsius does not have liquid funds to pay them all back, the users would still have an unsecured claim against Celsius.

Due to the fact that Celsius is a big cryptocurrency platform with a considerable number of users, it can be anticipated that these bankruptcy proceedings will last quite long and the restructuring plan will probably be amended a few times to ensure that all interests are considered.


Bitcoin investment strategy by Ivan Radic

What can affected users do?

Celsius’ customers that wish to reclaim their cryptos in the bankruptcy proceedings may file their claim with the bankruptcy court by use of the proof of claim form available through the Stretto website. This form is now being updated to be more tailored to Celsius and crypto claims. The updated claim form with detailed instructions will be posted on the website at a later date. It is anticipated that the Celsius’ customers receive the form, comprehensive instructions, and notification of the deadline to submit a claim once everything is approved by the Judge. For case related information, claim submission instructions, dates and deadlines refer to the Stretto website:

Note that this information does not constitute legal advice. If you need assistance in connection with the enforcement of your claims as Celsius customer, please do not hesitate to get in touch with us.

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