Celsius Network, a major player in the cryptocurrency lending space, is facing a challenging predicament. A U.S. bankruptcy judge has recently thrown a potential curveball in the company’s plan to pivot to a Bitcoin mining venture post-bankruptcy.
This suggestion, made during a recent court session, implies that Celsius might need to reconvene its creditors for a new vote on this significant shift in business strategy.
The Court’s Call for a New Vote
During the court session held on November 30, Judge Martin Glenn, overseeing Celsius Network’s Chapter 11 bankruptcy proceedings, expressed concerns about the company’s sudden change of course.
The judge underscored the importance of complying with the Securities and Exchange Commission (SEC) regulations, a point he had emphasized to Celsius repeatedly.
The crux of Judge Glenn’s contention lies in the fact that Celsius’ transition into a Bitcoin mining business is a marked departure from the original deal voted on by creditors, potentially leading to considerable opposition from them.
Celsius had recently announced its intention to narrow its post-bankruptcy focus exclusively to Bitcoin mining, a move influenced by the SEC’s skepticism over its original business model.
The SEC, while not outrightly opposing Celsius’ bankruptcy plan, has shown reluctance in endorsing the company’s crypto lending and staking activities, which it had previously criticized.
Celsius attorney Chris Koenig argued during the hearing that the court-approved bankruptcy plan granted the company enough leeway to shift its focus to mining. Koenig asserted that a new vote from creditors is unnecessary, maintaining that the revised plan would be equally beneficial for them.
Implications and Responses to the Proposed Shift
This proposed transition to Bitcoin mining is not without its detractors. Two Celsius customers, without legal representation, have voiced their objections in court documents. They argue that rather than transitioning, Celsius should opt for complete liquidation.
Celsius Network’s journey to this juncture has been tumultuous. The company filed for Chapter 11 protection in July 2022, following the path of several other crypto lenders that collapsed in the wake of the industry’s explosive growth during the COVID-19 pandemic.
The revised plan, as outlined by Koenig, involves releasing $225 million in cryptocurrency assets from external investors, known as the Fahrenheit consortium.
Under this new proposal, Celsius creditors are anticipated to receive a 67% recovery rate, a figure that surpasses the 61.2% recovery rate under the previous arrangement involving the Fahrenheit consortium.
The post-bankruptcy Bitcoin mining venture will be managed by US Bitcoin Corp, a member of the consortium that includes Arrington Capital as well.
The recent court developments have placed Celsius Network at a critical crossroads. As the company navigates its bankruptcy proceedings, the pivot to a Bitcoin mining-centric operation presents both opportunities and challenges.
The decision to shift business models, while aiming to be beneficial for the creditors, faces judicial scrutiny and requires careful maneuvering to align with regulatory expectations.
With the SEC’s cautious stance on crypto lending and staking, Celsius’ move towards Bitcoin mining could be a strategic attempt to adapt to the evolving regulatory landscape.
However, the success of this transition hinges on the approval of both the court and the creditors, making the upcoming proceedings crucial for the future of Celsius Network.
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