Celsius debtors to restructure defunct lender into Bitcoin miner instead of asset transfer

Celsius Network and its debtors intend to turn the defunct lender into a Bitcoin miner as part of its restructuring, according to a Nov. 20 press release.

Celsius customers will own the new entity, tentatively stated as ‘Mining NewCo.’

Mining NewCo

Celsius had proposed the formation of Fahrenheit NewCo as part of its restructuring and recovery plan, which the court approved on Nov. 9.

However, after receiving regulatory feedback on the plan from the SEC and conducting consultations with the Official Committee of Unsecured Creditors, the company and its debtors have decided to alter the initial plan, which would have entailed various regulatory complications.

The pivot is expected to see Celsius retain some assets designated initially for transfer to Fahrenheit NewCo, which the firm’s estates will now manage for creditors’ benefit.

The decision to concentrate solely on Bitcoin mining indicates a shift from earlier plans involving cryptocurrency staking. Celsius’ move towards mining reflects a growing trend in the crypto industry toward more traditional business practices compliant with the current regulations.

Celsius outlined plans to apply for registration of shares in the new publicly traded Bitcoin mining company. The move is a strategic step towards creating a more sustainable and transparent business model post-bankruptcy.

Mining NewCo is expected to commence operations with lower management fees and increased liquid cryptocurrency distributions, potentially providing greater returns to creditors.

This development signifies a critical juncture for Celsius as it navigates its way out of bankruptcy. With a new focus on Bitcoin mining, the company aims to realign its business objectives while adhering to regulatory requirements.

Bankruptcy

Celsius filed for Chapter 11 bankruptcy protection in July 2022 amidst a pause in withdrawals on its platform.

Compounding the firm’s challenges, the SEC filed a lawsuit against Celsius and its former CEO, Alex Mashinsky, over allegations related to the firm’s Earn Interest Program. Mashinsky was arrested on securities fraud, commodities fraud, and wire fraud charges and is currently out on bail. His trial is slated to begin in September 2024.

The lender collapsed due to complications arising from former Mashinsky’s trading decisions, mismanagement of $2 billion in assets, and inadequate systems for tracking these assets.

At the time, Mashinsky had attributed the collapse to the rapid growth of Celsius’ assets, which he claimed outpaced the company’s ability to make prudent investment decisions, resulting in some poorly judged asset deployments.

The cryptocurrency community and investors will closely monitor Celsius’ progress as it embarks on this new chapter, hoping for a successful turnaround and increased stability in the volatile crypto market.