Celsius is yet again devising a way to get out of its muddy waters.
Celsius Not Out Yet
Crypto lending platform, Celsius Network, which filed for bankruptcy protection in July 2022, is reportedly considering the launch of a new digital token as part of a plan to compensate its creditors. According to a report from Bloomberg, the firm’s attorney, Ross M. Kwasteniet, stated that a properly licensed and publicly-traded company, such as a revived Celsius, would be able to raise more money for creditors as opposed to simply selling its limited assets at current market prices.
This isn’t the first time a crypto company has issued a new token to evade financial troubles. In 2019, Bitcoin exchange Bitfinex launched the LEO Token to cover losses from its dealings with Panama-based Crypto Capital. Similarly, Beijing-based Bitcoin mining pool, Poolin, halted withdrawals in September 2020 and addressed the matter by issuing IOU debt tokens.
Celsius’s financial woes began in July 2022 when the company filed for bankruptcy protection and revealed a $1.2 billion hole in its balance sheet. Apart from facing creditors’ claims and accusations of running a Ponzi scheme, the platform also found itself dragged into a dispute with Bitcoin mining company Core Scientific, which itself went bust in December 2022. The two companies reached an agreement to shut off 37,000 Celsius mining rigs that Core claimed cost the firm as much as $53,000 a day.
A Big Scheme
The crypto market has been in turmoil for some time now, with many crypto firms becoming bankrupt due to the high volatility and lack of regulation in the market. Some individuals and organizations view crypto as a Ponzi scheme because of the similarities in the way returns are generated and distributed. In a Ponzi scheme, returns are paid to existing investors from funds contributed by new investors, rather than from profit earned by the operator. This creates the illusion of a profitable investment, but the scheme ultimately relies on a constant influx of new investors to generate returns for existing ones.
Similarly, in the crypto market, the value of a cryptocurrency can be driven by speculation and hype, rather than by its underlying value or utility. This can lead to rapid price increases that are not sustainable in the long term, and can result in significant losses for investors who get in at the wrong time. Additionally, many initial coin offerings (ICOs) and other crypto projects have been found to be fraudulent, with the operators using investor funds for personal gain rather than developing the promised products or services.
Another reason that some view crypto as a Ponzi scheme is the lack of regulation in the market, which allows for fraudulent activities to occur. Many countries do not have specific laws or regulations in place to govern the crypto market, making it difficult for investors to protect themselves from fraud or other illegal activities.
It’s important to note that not all crypto projects or investments are Ponzi schemes, but the market’s lack of regulation and tendency for hype-driven price increases can make it difficult for individuals to distinguish between legitimate and fraudulent opportunities. It’s always important to do your own research and due diligence before investing in any crypto project or investment.
Bankruptcy has ripple effects
if a cryptocurrency exchange files for bankruptcy, it can have significant effects on its users and the wider crypto community. Users may lose access to their funds, and the exchange’s bankruptcy may also affect the prices of the cryptocurrencies traded on the platform. The reasons for bankruptcy can vary, but it often results from poor management, hacking, or regulatory issues. It’s important for individuals to thoroughly research and consider the risks before investing in any cryptocurrency exchange or platform.
Despite the troubles faced by Celsius and other crypto firms, the crypto market continues to grow. According to Coinmarketcap, the total market capitalization of all cryptocurrencies was over $2 trillion as of January 25, 2023.
It remains to be seen whether the court will approve Celsius’s reorganization plan and the launch of a new token. However, if the plan is approved, the new company’s assets would include a portfolio of loans and other investments, as well as Bitcoin mining machines operated by Celsius. Court filings detailing the proposed plan are expected to be published later this week.
While the crypto market continues to grow, it is also facing increasing challenges, with many crypto firms becoming bankrupt. The troubles faced by Celsius and the possibility of a new token launch as part of its restructuring plan highlight the ongoing volatility and lack of regulation in the market. This has led to some viewing crypto as a Ponzi scheme, but the crypto market continues to evolve, and it remains to be seen how it will develop in the future.