Throughout the latter half of 2022, filing for bankruptcy became a reality for many high-profile crypto firms. The resurgence of “crypto winter” has brought many crypto-related entities to their proverbial knees. Indeed, in November 2021, the total cryptocurrency market capitalization reached an all-time high of approximately $3 trillion. That figure has decreased substantially, and today hovers around $850 billion — a 70% drawdown. This contraction of capital has greatly impacted the solvency of many notable crypto companies, including Celsius Network, LLC (Celsius).
Prior to its recent implosion, Celsius provided its customers a pathway to transform their cryptocurrency holdings into yield-bearing instruments through a deposit product known as an “Earn” account. At its peak, Celsius offered high yields on Earn account deposits, such as 5% for Bitcoin and up to 10% for certain USD-pegged stablecoins. However, on June 12, 2022, Celsius issued a memo informing its customers of its decision to pause withdrawals from the platform due to “extreme market conditions.” Then, on July 13, 2022, Celsius filed voluntary petitions for relief under Chapter 11 of the bankruptcy code.
Although the court’s ruling is rooted in traditional contract principles, it is arguably at odds with the current federal and state regulatory sentiment towards offerings of interest-bearing cryptocurrency deposit accounts. Notably, almost a week after the court issued its ruling, the Securities and Exchange Commission filed a civil enforcement action against Genesis Global Capital, LLC and Gemini Trust Capital, LLC for allegedly violating federal securities laws through the companies’ collaborative offering of the “Gemini Earn” interest-bearing cryptocurrency deposit product. Only time will determine the precedential value of the bankruptcy court’s ruling, but it does not appear the ruling will deter regulatory agencies from commencing civil enforcement actions against crypto-related entities that have, or are currently offering, interest-bearing cryptocurrency deposit accounts.