This crypto exchange garners double-digit growth in a single day. Read here

On CoinMarketCap, Celsius currently trades at $0.78 higher by 27.13%. The coin has touched an intraday high and low of $0.8342 and $0.6121 today. Its market cap is around $186.59 million. With today’s stellar performance, its weekly gains have reached around 11%, and in a month, the upside has been about 50.5%.

In its blog, on Thursday, Celsius said that the “filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, Swap, and transfers on its platform to stabilize its business and protect its customers. Without a pause, the acceleration of withdrawals would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”

“These Chapter 11 cases provide the Company with the best opportunity to stabilize the business, consummate a comprehensive restructuring transaction that maximizes value for all stakeholders, and emerge from Chapter 11 positioned for success in the cryptocurrency industry,” Celsius blog said.

Alex Mashinsky, Co-Founder & CEO, Celsius in the Business Wire cited by the exchange, said, “we have a strong and experienced team in place to lead Celsius through this process. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”

When did things turn haywire for Celsius?

When the Celsius platform was launched in 2018, things were looking really good for the exchange. Celsius was created with a basic business model where users could transfer their crypto assets to the exchange and benefit from the opportunity to borrow fiat, or other digital assets, against those assets or earn rewards on those assets at more favorable rates than traditional banks or cryptocurrency platforms that merely store crypto assets.

By end of 2018, more than $50 million in cryptos were transferred on its platform by users. That only boomed further and by May 2019, the number increased to $200 million. And in a matter of 2 years, Celsius saw this number grow to over $10 billion by March 2021.

The pandemic was an added bonus as investors looked to hedge funds in cryptocurrencies amidst an economic slowdown and equities were facing a bear run. There was even a brief time when cryptocurrencies were seen as a safe haven and compared to traditional golds.

Celsius continued to expand its business. In October last year, the exchange purchased non-Debtor GK8 Ltd. (“GK8″) for $115 million. The Israeli company provides a market-leading “cold” storage platform for crypto assets. Further, by December 2021, Celsius also announced the first closing of its Series B equity funding with fundraising of about $600 million from various investors at an implied enterprise value of approximately $3 billion.

And just before things turned bad, Celsius in May this year — had raised approximately $690 million from its Series B financing, with all but $6 million of that amount funded. The first shock of a bearish tone intensified in the cryptocurrency market was during mid of May and Celsius still had a promising outlook. Until June arrived!. 

The collapse of Terra tokens in May was going to hit hard not just investors but also the blockchain industry, and June emerged colder for exchanges like Binance, Celsius, and CoinFlex among others who all opted to suspend their withdrawals due to liquidity inadequacy as investors booked major losses and carried onto panic selling — a pattern that was familiar with equities market as inflationary pressure due to geopolitical tension, supply chain disruption, pandemic shocks, and higher commodity prices – became the biggest problem for the economic stability globally. Recession fear still continues to send shivers to investors globally. The outflows were higher than the inflows and money was getting short in crypto exchanges’ balance sheets, hence they halted their withdrawals to cap these losses.

By July, Celsius had approximately 1.7 million registered users and approximately 300,000 active users with account balances of more than $100, and approximately $6.0 billion in assets and it was preparing to go forward with an initial public offering of Debtor Celsius Mining LLC (“Mining”).

But things changed before it could go forward with the public offer. Celsius’s downfall could be called “certain poor asset deployment decisions.”

In its court filing for bankruptcy, the exchange said, “Celsius’ early success was not without its hiccups. The amount of digital assets on the Company’s platform grew faster than the Company was prepared to deploy. As a result, the Company made what, in hindsight, proved to be certain poor asset deployment decisions.”

Celsius explains that some of these deployment activities took time to unwind, and left the company with disproportional liabilities when measured against the unprecedented market declines. Also, the company suffered other unanticipated losses.

The company was making significant changes to its business model to address these losses, including reducing rewards rates and introducing user fees in 2021 and 2022.

“In the midst of the Company’s efforts to right-size those liabilities, unanticipated global events put a strain on the Company’s activities. Among other factors, the lingering effects of the COVID-19 pandemic, coupled with rampant inflation and the adverse effects of the war in Ukraine on the world economy, contributed to a massive sell-off in traditional assets in 2022. The crypto market is not immune to these macroeconomic trends, as it also experienced extreme market volatility in 2022, particularly in the last three months,” Celsius in its court filing document said.

Among the negative factors, Celsius pointed to crypto exchanges was the implosion of Terra LUNA (“Luna”) and its TerraUSD (UST) stablecoin (“UST”) – as it accelerated the onset of a “crypto winter” and an industry-wide sell-off in 2022.

“The onset of the “crypto winter” combined with the well-publicized collapse of Luna and the failure of several crypto funds/exchanges led to growing industry-wide reluctance to do business with companies, such as Celsius, that held crypto assets. This reluctance was exacerbated by a series of negative media and social media comments about Celsius, a number of which were unsupported and misleading. As a result of all of these factors, users began withdrawing crypto from Celsius’ platform in large amounts and at a rapid pace,” Celsius said.

It needs to be noted that some of Celsius’ crypto is attached to long-term and illiquid crypto deployment activities, a portion of assets have been loaned to third parties, and some part of assets have been pledged in support of borrowings or sold to generate cash which was used to acquire Bitcoin mining equipment and the GK8 storage business.

Explaining the withdrawal halt scenario, Celsius said, “Because of the variety of asset deployment strategies the Company engaged in, including the terms and length of time those strategies “lock” the assets, and due to the drop in value of digital assets, Celsius was unable to both meet user withdrawals and provide additional collateral to support its obligations.”

On June 12, Celsius paused all withdrawals, swaps, and transfers on its platform.

That has left the exchange to deal with an unexpected and rapid “run on the bank.”

It said, “The Pause was intended to prevent certain users—those who were the first to act—from being paid in full while leaving other users behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they received a recovery.”

Further, on June 19, Celsius retained Centerview Partners LLC (“Centerview”), as financial advisor and investment banker, and Alvarez & Marsal North America, LLC (“A&M”), as restructuring advisor to advise on potential transactions. By June 28, the exchange retained Kirkland & Ellis LLP (“Kirkland”) as restructuring counsel. Celsius stated that all suggested that an in-court process would be necessary to yield the most value-maximizing path forward and to allow Celsius to return value to users in a fair and transparent manner.

“These chapter 11 cases will provide a “breathing spell” for the Debtors to negotiate and implement a plan that will maximize the value of its business and generate meaningful recoveries to our stakeholders as quickly as possible,” Celsius added in the document.

As of July 13, 2022, Celsius’s liabilities are around $5.5 billion, and assets are valued at around $4.31 billion. Thereby, the company has a deficit of $1.19 billion on its balance sheet. But Celsius has also announced that they have ample liquidity with $167 million in cash to support operations.

It will be keenly watched how Celsius overcomes from rags to riches in the crypto market.

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