Creditors express frustration over alleged reduction in payments in Celsius bankruptcy case. Some forced to accept cash instead of crypto, leading to significant losses.

A cluster of lenders of insolvent cryptocurrency lending company Celsius, which is grappling with over $3 billion in demands, is raising objections regarding an alleged reduction of 30% or more in payments compared to what they were assured as per the initial bankruptcy proposal. This purported reduction stems from a regulation where only 100 corporate accounts of Celsius are eligible to receive distributions through the Coinbase platform.

This regulation purportedly compels certain lenders to opt for cash rather than cryptocurrency as payment. With Bitcoin (BTC) and Ether (ETH) experiencing significant price hikes since the distribution terms were agreed upon, this leaves small business lenders with considerably lower payments in comparison to the top 100 business accounts on Celsius.

An Australian lender claiming to be owed 0.182 BTC and 3.05 ETH under the bankruptcy terms contacted Cointelegraph. Preferring to remain anonymous, the lender disclosed that the law firm representing Celsius debtors, Kirkland & Ellis, informed them that they would not receive the original amount. Instead, they would receive $15,741 in cash, a 36% decrease from the cryptocurrencies’ market value of $24,552 at the time of publication. Conversely, a corporate lender within the top 100 on Celsius is purportedly slated to receive the full cryptocurrency amount promised, according to the lender.

The lender provided Cointelegraph with email exchanges between them and a representative from Kirkland & Ellis. In these correspondences, the representative seems to confirm that the lender will receive a cash payment that does not equate to the promised cryptocurrency. The representative stated, "I understand the frustration that crypto prices have gone up since your fiat distribution was reserved," adding, "but if prices had gone down, you would be [also] getting more BTC and ETH."

According to the representative, a Coinbase regulation is accountable for the diminished payments, stating:

"Unfortunately, we only have 100 slots for corporate lenders, so those slots were allocated to corporate lenders with the largest claims. Corporate lenders not on that list of 100 have to receive fiat distributions—we have no way to distribute cryptocurrency if Coinbase will not support those distributions. We have no way to make those distributions without a regulatorily compliant distribution partner."

Several lenders have written to United States bankruptcy Judge Martin Glenn, who is overseeing the case, to express their grievances regarding the reduced payments. Jake and Sheri Faller from Oak Park, California, declared that their payments are being slashed by 26%–33% due to the alleged Coinbase regulation, which they deemed unfair, stating, "We [...] feel it’s unfair and not equitable that only 100 corporate accounts were selected to receive crypto distribution without any transparency on how those 100 accounts would be chosen, with the rest receiving USD checks and wires."

Hui Ka Hin, a resident of Hong Kong, also lodged a complaint with Judge Glenn regarding the decision, stating, "I find myself in a precarious situation where I am forced to accept US Dollar Distribution, instead of crypto (BTH/ ETH) as mentioned in previous docket." Hin claimed that crypto distribution is allowed in Hong Kong, but for “unknown reasons,” Celsius chose to distribute the funds in U.S. dollars.

Celsius lender payment computations

The bankruptcy plan of Celsius was ratified by the Court on Nov. 9. It employs two different sets of cryptocurrency prices to determine the amount owed to lenders. The first set of prices is determined by the “petition date,” or the date Celsius filed for bankruptcy, which is July 13, 2022, while the second set is the “effective date” for distributions, which is Jan. 31, 2024.

The petition date price for Bitcoin is $19,881, and for Ether it is $1,088.17. There are also petition date prices for other cryptocurrencies, such as Dash (DASH), Dogecoin (DOGE), Pax Gold (PAXG), Uniswap (UNI), and every other altcoin that was supported by Celsius when it ceased processing withdrawals.

To ascertain the USD amount owed to lenders, the debtors sum up the petition date value of each cryptocurrency held in the lender’s Celsius account. This total constitutes the dollar amount owed to lenders. According to the plan, 14.9% of this amount is to be paid out in Ionic Digital mining company stock, 6.4% in “illiquid assets recovery” at a future date, and 20.8% is not going to be paid out due to Celsius being insolvent at the time of the petition. This leaves 57.9% to be paid out in cash or crypto.

Most lenders are receiving payments in crypto rather than U.S. dollars. This is where the “effective date” prices come into play.

The effective date price is $42,973 for BTC and $2,577 for ETH. Of the 57.9% intended to be paid out in cash or crypto, the plan calls for a 50% BTC and 50% ETH distribution to most lenders. To determine the BTC and ETH owed to the lender, the debtors divide the dollar amount owed into two halves. The first half is divided by the effective date Bitcoin price, and the second half by the effective date Ether price, yielding an amount of BTC and ETH to be distributed.

For instance, a Celsius lender who held 1 BTC and 1 ETH in their account when the platform halted withdrawals would have seen their holdings amount to $20,969.17 on the petition date. However, the lender would only receive 57.9% of that as a cash or crypto payment, or $12,141.15. Half of this, $6,070.58, would be paid out as 0.14 BTC. The other half would be paid out as 2.36 ETH. This represents an 86% decrease in BTC and a 135% increase in ETH compared to the initial holdings.

In terms of dollar value, 1 BTC and 1 ETH had a combined value of $45,550 on the effective date. This implies that the hypothetical lender missed out on $33,408.85 in gains during the ongoing crypto bull market as bankruptcy proceedings were underway.

If the hypothetical lender held a corporate account that was not among the top 100 asset holders and had not received payment as of March 13, their capital would have been tied up even longer, resulting in further missed gains. The price of Bitcoin on March 13 was $72,665, and ETH was valued at $3,980.40. This means that the hypothetical investor missed out on $64,503.85 in gains or an additional $31,095 over what they would have received if they had been paid in crypto.