A US bankruptcy judge has ruled that cryptocurrency lender Celsius Network owns most of the cryptocurrencies deposited on its online platform by customers. This means that the majority of its users will be at the bottom of the priority list when it comes to being repaid in the bankruptcy process.
This decision by New York bankruptcy Judge Martin Glenn affects around 600,000 accounts that held assets worth $4.2bn at the time of Celsius' bankruptcy in July. The company does not have sufficient funds to fully repay these deposits due to various defaults (Three Arrows Capital, Terra/Luna, etc.) and unfavorable investments. Specifically for former Celsius customers with yield accounts, this means that they will have lower priority than secured creditors. It is unclear from the Wall Street Journal whether Celsius has significant secured debts.
A controversial ruling by US judge
The ruling also prevents a dispute over higher priority among customers with yield accounts, avoiding a situation where some customers receive 100% of their deposits back while other customers receive "only a small percentage" of their deposits, according to Glenn. According to the bankruptcy judge, Celsius' terms of use clearly stated that the cryptocurrency lender became the owner of customer deposits in its yield-bearing "Earn" accounts. Users of this product will therefore be treated as unsecured creditors and will be reimbursed only after the repayment of higher-priority debts.
Twelve US states and the District of Columbia opposed Celsius' attempt to claim the digital assets, arguing among other things that it was unclear whether customers understood the terms of use and that Celsius was being investigated for violations of regulations in several states. This situation could potentially prevent the company from relying on the terms of use.
Some hope for Celsius customers
According to Judge Glenn, the ruling does not mean that Earn customers will get "nothing" in the bankruptcy proceedings. The ruling also does not prevent further challenges to the ownership of the cryptocurrency deposits. Celsius customers may potentially file fraud or breach of contract lawsuits against the cryptocurrency lender. In the best case scenario, regulatory agencies will argue that the contracts of account holders cannot be enforced due to violations of state securities laws.
"The court does not take lightly the consequences of this decision for ordinary people, many of whom have substantial savings deposited into Celsius' platform. Creditors will have every opportunity to receive a full hearing on the merits of these arguments during the proceedings." - U.S. Bankruptcy Judge Martin Glenn
In December, Glenn decided that a relatively small group of customers with various types of Celsius accounts were entitled to their deposits during the Celsius bankruptcy. This decision was limited to customers who did not have interest-bearing custody accounts, whose funds were not mixed with other Celsius assets, and whose accounts were too small for Celsius to reclaim.
Generally, the question of ownership of crypto deposits is also central to other high-profile crypto bankruptcies such as Voyager Digital and BlockFi. After all, the decision sets a precedent and will undoubtedly be taken into account in subsequent judgments. Once again, the motto "not your keys, not your coins" is proving to be true.
