Crypto lender Celsius Network has revealed a $1.2bn hole in its balance sheet caused by what chief executive Alex Mashinsky called “poor” investments and other “unanticipated” losses.
Celsius made the disclosure as it sought US bankruptcy protection this week after freezing customer funds in June, which made it the latest victim of the crash in crypto markets that has forced two other large companies into recent bankruptcy.
Mashinsky, who co-founded Celsius in 2017, laid bare the scale of the New Jersey-based company’s problems in a 61-page court filing on Thursday. It showed liabilities of $5.5bn, and assets of just $4.3bn.
The vast majority of the liabilities, $4.7bn, were attributed to Celsius users. The filing suggested they may face significant losses and blamed the company’s problems on a mixture of bad bets, market conditions and a failure to manage its rapid growth.
“The amount of digital assets on [Celsius’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,” Mashinsky wrote in the filing.
Celsius was one of a handful of crypto lenders that pulled in billions of dollars worth of assets from ordinary investors in recent years. It promised interest rates as high as 18 per cent on certain cryptocurrencies.
Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec, and investment firm WestCap led a $600mn equity funding round last year that valued Celsius at $3bn.
Theer is the third big crypto lendo company to file for bankruptcy, following crypto broker Voyager Digital and hedge fund Three Arrows Capital. All three have been hit by collapsing crypto asset prices and a freeze in credit in the market.
Mashinsky admitted a series of mistakes that had resulted in losses and detailed investments that had left Celsius unable to return money to customers as it was a bank run this year.
One was a $510mn loss discovered in 2021 when Celsius sought to recover collateral it had pledged to cover borrowings from an unnamed “private lending platform”.
“The lender was unable to return the . . . collateral on a timely basis,” Mashinsky wrote. Some $440mn of that remains outstanding, he added.
Celsius also incurred losses of almost $100mn when collateral it had pledged to secure a loan from Tether — the stablecoin issuer that is an equity investor in Celsius — was liquidated by mutual agreement in recent months.
Mashinsky said about $1bn of Celsius’s funds were illiquid as they had been committed to the company’s bitcoin mining operation or invested in a version of the Ethereum network that has not been launched.
He suggested Celsius’s recovery plan could involve using bitcoin generated from its mining operations to “address its current cryptocurrency deficit”.
As well as admitting the company’s mistakes, he blamed “misinformation” in the media and on social media for encouraging customers to pull about $1bn worth of funds over five days in May.
Mashinsky said Celsius had been on its way to addressing its problems when the market turned this year.
“The company believes that it would have likely succeeded in the near future if the market had remained relatively stable.”