One of the biggest cryptocurrency lenders has become the latest industry giant to be toppled by this year's massive crash in crypto prices. Celsius Networks, which froze customer accounts a month ago, has filed for Chapter 11 bankruptcy protection and it's not clear when, or if, its customers will see any of their funds again, CNBC reports. The company offered customers interest rates of up to 18% on cryptocurrency, which it borrowed to loan to institutional investors, per Bloomberg. Celsius said Wednesday that it had to halt withdrawals because letting them continue "would have allowed certain customers—those who were first to act—to be paid in full while leaving others behind."
In its bankruptcy filing, the company said its estimated assets and liabilities were in the $1 billion to $10 billion range, with more than 100,000 creditors, reports Reuters. Celsius said it had $167 million cash on hand to finance "certain operations," including staff salaries, during the bankruptcy process, but it isn't seeking approval for withdrawals to resume while it undergoes restructuring. Problems at Celsius and other firms have highlighted the lack of legal protection for cryptocurrency investors, "who don’t have the same safety nets that kick in when regulated banks and brokerages fail," the Wall Street Journal notes.
Six state regulators are now investigating Celsius, including Vermont, which says the firm "deployed customer assets in a variety of risky and illiquid investments, trading, and lending activities." Georgetown law professor Adam Levitin tells CNBC that customers could end up only getting pennies on the dollar back, and even that could take years. "The treatment here seems to be that the customer’s crypto is actually the company’s property, and as an unsecured creditor, you don’t get your bitcoins back,” says Levitin, who predicts that there will be more major bankruptcies in the sector. "The tide is still going out, we’re just waiting to see how far it goes." (Read more cryptocurrency stories.)