Celsius Network Faces Legal Obstacles in Shift to Bitcoin Mining: Court Demands New Vote
In an unexpected twist, Celsius Network, a prominent player in the world of cryptocurrency lending, is now caught up in legal complexities. A recent suggestion from a U.S. bankruptcy judge has cast doubt on the company’s plan to transition into a Bitcoin mining venture following its bankruptcy proceedings.
During a court session on November 30, Judge Martin Glenn, presiding over Celsius Network’s Chapter 11 bankruptcy, raised concerns about the company’s sudden change in direction. This implies that Celsius may need to reconvene its creditors for a new vote, considering the significant deviation from the originally approved business strategy.
The judge emphasized the importance of Celsius adhering to Securities and Exchange Commission (SEC) regulations, echoing concerns that have been repeatedly expressed to the company.
Judge Glenn’s concerns revolve around Celsius’ shift to a Bitcoin mining business, which is a stark contrast to the business model that was initially approved by creditors. This shift could potentially face opposition from these creditors, further complicating the company’s trajectory after bankruptcy.
Celsius recently announced its plans to exclusively focus on Bitcoin mining, a decision influenced by the SEC’s reservations about its original business operations. While the SEC has not explicitly opposed Celsius’ bankruptcy plan, it has shown reluctance in endorsing the company’s crypto lending and staking activities, which have previously faced criticism.
Celsius attorney Chris Koenig argued during the hearing that the court-approved bankruptcy plan allowed sufficient flexibility for the company’s shift to mining. Koenig contended that a new vote from creditors was unnecessary, asserting that the revised plan would be equally advantageous for them.
However, objections have been raised by two Celsius customers who, without legal representation, have expressed their dissent in court documents. They advocate for Celsius to opt for complete liquidation instead of transitioning.
The journey of Celsius Network leading to this critical moment has been tumultuous. After filing for Chapter 11 protection in July 2022, the company followed the path of several other crypto lenders that faced collapse amidst the industry’s explosive growth during the COVID-19 pandemic.
What triggered this turn of events? It seems that the Securities and Exchange Commission’s skepticism regarding Celsius’ initial crypto lending and staking business heavily influenced the company’s pivot towards Bitcoin mining. Judge Glenn emphasized the utmost importance of adhering to SEC regulations, a point that has been repeatedly stressed to Celsius.
The crux of the matter lies in Celsius’ decision to narrow its focus solely on Bitcoin mining after bankruptcy, which is a significant departure from the direction approved by creditors. This diversion could face significant opposition from those who had previously approved a different trajectory for the company.
The revised plan, outlined by Koenig, involves releasing $225 million in cryptocurrency assets from external investors, notably the Fahrenheit consortium. Under this proposal, Celsius creditors are projected to receive a 67% recovery rate, surpassing the 61.2% rate from the prior arrangement involving the Fahrenheit consortium.
The post-bankruptcy Bitcoin mining venture is planned to be managed by US Bitcoin Corp, a member of the consortium, which includes Arrington Capital.
These recent court developments have placed Celsius Network at a crucial juncture. As the company navigates through its bankruptcy proceedings, the transition to a Bitcoin mining-centric operation presents both opportunities and challenges.
The decision to change business models, aimed at benefiting creditors, is now under scrutiny in court and requires careful navigation in line with regulatory expectations, particularly considering the SEC’s cautious approach to crypto lending and staking.
Celsius’ move towards Bitcoin mining appears strategic, as it aims to adapt to the evolving regulatory landscape. However, the success of this transition hinges on approval from both the court and the creditors, making the upcoming proceedings pivotal for Celsius Network’s future.