Celsius bankruptcy signals more pain for users with frozen funds

The crypto exchange paused withdrawals in June and has now officially filed Chapter 11. Meanwhile, users' money is still stuck in limbo with no end in sight.

Lisbon , Portugal - 4 November 2021; Alex Mashinsky, Celcius, on Centre Stage during day three of We...
Piaras Ó Mídheach/Sportsfile/Getty Images

The last time we checked in on Celsius it was to highlight some of the actions CEO, Alex Mashinsky, was taking to deflect blame for the way he handled the decision to abruptly suspend withdrawals and other transaction activity over the popular crypto lending platform.

Now, almost exactly a month to the date, Celsius has filed for Chapter 11 bankruptcy signaling to its user base that they will be waiting even longer to receive concrete updates on recovering funds stored in their accounts.

There are a number of anecdotal cries for help on the Celsius sub-reddit at the moment.

Not exactly surprising — Keep in mind that the decision to disable withdrawals, swaps, and transfers last month was announced with no warning or grace period, but simply ushered in with a blog post.

Just four days prior to the decision, the company posted an interview with Rod Bolger, who had recently accepted the CFO position, in which he extolled the platform’s “liquidity framework,” noting that “clients who needed to access their digital assets could get them free and clear.”

The filing pointed out that there are about 300,000 active users on Celsius with more than $100 in their accounts, and are defined as unsecured creditors. Part of the reason why the platform acted with such severity was because a wave of users began withdrawing funds, due to the spiraling crypto market.

Mashinsky and Celsius quickly moved to shut down the digital bank run. Where commercial banks rarely deny its customers the ability to withdraw funds, actors in the unregulated crypto space can simply suspend transaction activity overnight. Despite the U.S. Department of Justice suggesting a more punitive environment for crypto-related crimes, it remains to be seen how it will deal with an increasingly volatile and exploitative legal market.

It’s a cruel twist of irony that Mashinsky, who has lambasted other crypto exchanges in the past about user withdrawals — and even extolled the idea that banks are not your friends in public — appears to ultimately have decided to run his company just like a bank, unchecked power and all.

As usual, users of Celsius will be the ones paying the price.