Crypto lender Celsius Network revealed a $1.2 billion hole in its balance sheet caused by what CEO Alex Mashinsky called “bad” investments and other “unexpected” losses.
Celsius made the disclosure as it sought bankruptcy protection in the US this week after freezing customer funds in June, making it the latest victim of the collapse in crypto markets that forced two other major companies into bankruptcy recently.
Mashinsky, who co-founded Celsius in 2017, revealed the extent of the New Jersey-based company’s problems in a 61-page filing on Thursday. It showed liabilities of $5.5 billion and assets of just $4.3 billion.
The majority of liabilities, $4.7 billion, were attributed to Celsius users. The filing suggests they could face significant losses and blames the company’s problems on a combination of bad bets, market conditions and a failure to manage its rapid growth.
“The amount of digital assets of [Celsius’s] the platform grew faster than the company was ready to implement. As a result, the company made what, in retrospect, turned out to be some poor asset deployment decisions,” Mashinski wrote in the filing.
Celsius was one of a handful of crypto lenders that raised billions of dollars in assets from ordinary investors in recent years. He promised interest rates of up to 18 percent on certain cryptocurrencies.
Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec, and investment firm WestCap led a $600 million capital round last year that valued Celsius at $3 billion.
The lender is the third major crypto company to file for bankruptcy, following crypto broker Voyager Digital and hedge fund Three Arrows Capital. All three were hit by a crash in crypto asset prices and a credit freeze in the market.
Mashinsky admitted to a series of mistakes that led to losses and detailed investments that left Celsius unable to return money to customers as it suffered a write-off this year.
One was a $510 million loss discovered in 2021 when Celsius tried to recover collateral it had pledged to cover loans from an unnamed “private lending platform.”
“The lender failed to repay . . . collateral on time,” writes Mashinski. About $440 million of that remains outstanding, he added.
Celsius also suffered losses of almost $100 million 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 consent in recent months.
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Mashinsky said about $1 billion of Celsius’ funds are illiquid because they were committed to the company’s bitcoin mining operation or invested in a version of the Ethereum network that hasn’t launched.
He suggested that Celsius’ recovery plan could involve using bitcoins generated from mining operations to “address the current cryptocurrency deficit.”
In addition to acknowledging the company’s mistakes, he blamed “misinformation” in the media and social media for encouraging customers to withdraw about $1 billion in five days in May.
Mashinsky said Celsius was on its way to overcoming its problems when the market turned this year.
“The company believes it would likely have succeeded in the near term if the market had remained relatively stable.”
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