Coppola Comment

Celsius Network was never a real business. It did not have a viable business model. Really, it was a momentum trading scheme that relied on the premise that crypto prices would always rise. And when they didn't, it resorted to fake valuations and market manipulation to escape insolvency. It was fraudulent from the start.   This is the conclusion I've reached after studying the U.S. Examiner's final report (yes, I've read all 476 pages of it) and Celsius's audited reports and accounts up to 31st December 2020.  There are no more recent audited accounts. It was due to file its 2021 accounts by 31st December 2022, but it did not do so. The accounts are now significantly overdue. I doubt if they will ever be filed.  The U.S. Examiner's report reveals deep and long-lasting insolvency, concealed by layer on layer of fraud. Whether Alex Mashinsky, Celsius's founder, owner and CEO, knew that the devices he used to conceal the company's insolvency were fraudulen...

How did it all go so wrong, so quickly? Less than a month ago, Sam Bankman-Fried was the golden boy of crypto, with a net worth in the $billions, and his exchange FTX was valued at $32bn. Now, FTX has a gaping hole in its balance sheet, thousands of people have lost their money, and Sam is facing personal bankruptcy and, potentially, fraud charges.  The short answer is - it didn't. The hole in FTX's balance sheet has existed for a long time. We don't know exactly how long, but the size of the estimates (ranging from $6-$10 billion) suggests several months if not years. Sam has been trading while insolvent. He's not the only crypto oligarch to do so: Celsius's Mashinsky also traded while insolvent for an extended period of time.  Trading while insolvent is illegal, of course. But in cryptoland scant attention is paid to such niceties. It is (or would like to be) a lawless, self-regulating space in which conventional courts and regulators have no place. And anyway, th...

Yesterday, the failed crypto lender Celsius filed a monthy cash flow forecast and a statement of its assets and liabilities held in the form of cryptocurrency and stablecoins. They showed that the lender is deeply underwater and will run out of money within two months.    Today, Celsius presented an update regarding its chapter 11 bankruptcy plans. Reading this, you'd think it was a different company. Liquidation isn't on the agenda. No, they are talking about "reorganization" and and seeking debtor-in-possession (DIP) financing:  DIP financing is a specialist form of finance for companies in chapter 11 bankruptcy to enable a company to continue operating. It usually takes the form of term loans. DIP loans are secured on the company's remaining assets and are typically senior over all other claims, so must be repaid before claims from existing creditors can be settled. Because DIP finance dilutes existing claims, the bankruptcy court must agree to it. In Celsius...

The collapse of Terra in May sent shock waves round the crypto world, triggering domino-like collapses of crypto companies. One of those companies was the investment fund Three Arrows Capital. At the time, everyone thought 3AC was a conservatively-managed investment company that was simply the unfortunate victim of an unforeseen event. If anyone was to blame for 3AC's collapse, it was Do Kwon.   How wrong they were. Since 3AC was ordered into liquidation by a British Virgin Islands court, more  and more creditors have emerged from the woodwork claiming they are owed money. The liquidators have filed emergency motions to freeze 3AC's assets because there is evidence that funds are being moved out of reach. And 3AC's co-founders, Su Zhu and Kyle Davies, have done a runner, though Bloomberg says they are planning to set up shop in Dubai.  The liquidators applied to the Singapore High Court to have the BVI liquidation order recognised in Singapore. This would give them a...

The crypto lender Celsius has filed for Chapter 11 bankruptcy. This should come as a surprise to absolutely no-one, though the grief and pain on Twitter and Reddit suggests that quite a few "Celsians" didn't want to believe what was staring them in the face. Celsius suspended withdrawals nearly a month ago. So far, every crypto lender that has suspended withdrawals has turned out to be insolvent. There was no reason to suppose that Celsius would be different.   Celsius's bankruptcy filing says the company has assets of $1 - 10 bn and a similar quantity of liabilities:  This doesn't tell us much about the extent of the company's insolvency. But rumours have been circulating of a $2bn hole in its balance sheet. In May,  according to Coindesk , the company said it had $12bn of what Celsius calls "customer assets" and Coindesk calls "assets under management", and $8bn lent out to clients. So "assets under management" seem to have fal...

Two days after I published my last post , the ship went down. Voyager Digital filed for Chapter 11 bankruptcy protection .  The bankruptcy filing revealed the extent of its indebtedness. Tragically, most of its creditors are customers, some of whom hold claims worth millions of dollars. But its largest creditor is Alameda Research, to whom it owes $75m. This is the maximum that Voyager could draw down from Alameda's credit line in a 30-day period. So it appears that Alameda did not pull its credit line as I thought. Rather, Voyager maxed it out - but still ran out of money. Voyager's desperate shortage of cash is the proximate reason for its bankruptcy.  But for its customers, the hole in its balance sheet is the bigger problem. Voyager admits that it cannot repay all, or even most, deposits in full. Its press release outlines a resolution plan that distinguishes between two classes of depositor (click image for a larger view) : US dollar deposits on Voyager don't earn int...