Celsius’ retail borrowers finally have an answer on who owns the cryptocurrency they deposited into Celsius in exchange for a loan from Celsius – spoiler alert: on November 13, 2023 the bankruptcy court held that Celsius’ terms of service “clearly and unambiguously” gave Celsius ownership of retail borrowers’ cryptocurrency. The bankruptcy court’s decision follows its January 2023 decision which similarly held that the cryptocurrency of Celsius’ “Earn” customers also belonged to Celsius because the terms of service similarly unambiguously granted Celsius title ownership.
How did we get here?
Since filing for bankruptcy in July 2022, Celsius has finally confirmed a chapter 11 plan that reorganizes the company into a digital mining enterprise. In a dose of hindsight, the case has been plagued with the increasingly common hallmarks for cryptocurrency cases including:
- A CEO arrested for fraud;
- An independent examiner confirming customers’ worst fears that Celsius operated “without any formal procedures, controls, or sufficient financial data"; and
- Thousands of upset customers frustrated that their crypto was being tied up as Bitcoin recovered from approximately $23,400 in July 2022 to $35,500 today.
After over a year of restructuring efforts, the bankruptcy court confirmed Celsius’ chapter 11 plan in November 2023. On November 13, 2023, the bankruptcy court issued a written opinion supporting its confirmation decision by explaining why it valued the Celsius tokens (the “CEL Tokens”) – the digital assets offered to Celsius customers for using the Celsius platform – at $0.25 and why retail borrowers who deposited their digital assets into Celsius to obtain a loan also happened to transfer ownership of their digital assets to Celsius.
Have we heard this before?
The issue of CEL Token’s value came up when creditors argued that they were entitled to more value under Celsius’ confirmed chapter 11 plan. The bankruptcy court disagreed. In particular, the court held that CEL Tokens were priced based on a combination of (1) the utility it offered customers for using the Celsius platform and (2) the speculative value of the CEL Tokens being used in a reorganized business or even as a “memecoin” (seriously).
Upon Celsius pausing buying and selling on its platform (i.e., its entire operating business model) in June 2022, there simply was no utility for the tokens and in turn no utility value. As for the CEL Token’s speculative value, the court noted that almost every expert agreed that tokens issued by a bankrupt and defunct platform likely had little value. Accordingly, the court concluded that $0.25 per CEL token just to settle the dispute was a fair (and perhaps generous) valuation for a platform that would never operate again.
Echoing its prior January 2023 decision about “Earn” customers, the court also held that retail borrowers also “clearly and unambiguously” transferred title of their assets to Celsius when they deposited digital assets to Celsius and borrowed money from Celsius in accordance with the Celsius terms of service:
In consideration for the Loan, you grant Celsius the right, subject to applicable law, without further notice to you, to hold the Digital Assets provided as Collateral in Celsius’ name or in another name, and to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets, separately or together with other property, with all attendant rights of ownership, and for any period of time, and without retaining in Celsius’ possession and/or control a like amount of Digital Assets or any other monies or assets, and to use or invest such Digital Assets at Celsius’ own risk.
Based on the language, the court convincingly found that the plain meaning of the terms of service unambiguously gave Celsius title ownership to retail borrowers’ assets.
The court’s recent decision reinforces a few bitter lessons from the cryptocurrency bankruptcy winter:
- Know your terms: Anyone who has deposited their cryptocurrency in any platform (whether an exchange or custodial service) should review the terms of service carefully to determine whether the platform owns the cryptocurrency.
- Know your assets: Digital asset holders should carefully and appropriately evaluate the risks related to their assets – digital assets may have differing value depending on their utility, liquidity, and speculative value and understanding those factors is important for risk-management, leverage and margin requirements, and reserve management.
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