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Celsius and 3AC collapse: Why is it everybody’s problem and how will it affect the Bitcoin price?

Igor Grigorchenko

News editor

Jul 14, 2022 at 11:03

If you follow the crypto market news at least superficially, you have definitely already heard about Celsius and Three Arrows Capital (3AC). You might have also heard that these companies are in big trouble. Why should this concern you? Let’s explain.

Celsius and 3AC have become symbols of the DeFi industry’s default crisis. The failure of these large companies to service clients and pay off a number of loans, refusing to support their margin positions, all led to the cascading collapse of a dozen startups and the bankruptcy of major cryptocurrency broker Voyager.

A month after the collapse, what’s happening in the industry? Is anyone left alive? Here’s our digest of the state of affairs with the Celsius and 3AC bankruptcies so far.

The current situation with Three Arrows Capital (3AC)

At first, furious creditors tried to reach Three Arrows Capital’s accounts at the firm’s Virgin Islands incorporation. It was difficult, almost impossible. But the creditors succeeded in doing something else: deregistering this scandalous fund in an offshore court.

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After this creditors’ victory, 3AC turned to the U.S. courts for bankruptcy protection. As it turned out, this is the country where 3AC keeps its main assets and capital. But the attempt at protection failed — the Manhattan bankruptcy judge Martin Glenn ruled that the hedge fund’s assets and funds in its accounts were given to a bankruptcy trustee from the consulting firm Teneo.

The court order also prohibited the founders of the scandalous hedge fund from using their cryptocurrency wallets and froze all bank accounts and real estate transactions. Here’s an interesting detail: the location of 3AC during the court session could not be established; now, it is a phantom company whose resources are open to a gambling hunt in several countries at once.

Teneo will hold its first meeting of creditors on July 18. There are two pieces of news in this connection:

  • The bad news:

This could lead to another big sell-off of the cryptocurrency over the weekend and a drop in bitcoin. Creditors are looking forward to repaying their loans.

  • The good news:

It will give long-awaited certainty about the size of 3AC’s available resources. Accordingly, it will clarify how crisis-affected companies will deal with the situation. Clarity is the best medicine for frightened markets.

The current situation with Celsius

Investors expect similar certainty from Celsius. However, this company’s management has chosen a maximal delay strategy. According to the official version, the company is looking for external resources to solve its problems and this takes time.

There is a tense atmosphere in the market, and most investors are not inclined to believe in such promises, putting serious pressure on Celsius.

Yesterday, Celsius’ principal investor, BnkToTheFuture, said it had raised $6 billion to cover all known Celsius loan obligations. A counter-condition to providing the funds was the disclosure of financial statements to a pool of financial donors.

Is there a solution? Things are probably so bad, in fact, that Celsius is still afraid to show its balance sheet and debt report. BnkToTheFuture, which went to great effort to solve this problem and accumulate enormous liquidity of $6 billion, finds itself in a difficult situation — the investor pool it assembled is falling apart before everyone’s eyes. Seeing Celsius’ strange behavior, the donors hastily pull out of the deal.

At the same time, Celsius is being attacked by the feds, who have so far limited themselves to skimpy reports so as not to scare the market further. According to their reports, the regulator’s inspection revealed that Celsius has insufficient assets and liquidity to cover its liabilities to investors (which, by the way, was already obvious to everyone).

Celsius provided high-risk, illiquid investment products to clients, the regulators said. The state of Vermont plans to charge Celsius with issuing unregistered securities under the guise of a CEL service token.

According to the latest news, Celsius has started the process of bankruptcy protection.

Short conclusion

It’s a paradoxical situation on the market, isn’t it? The management of 3AC is hiding from the investigation; the company’s legal entity does not exist — but the company’s assets will soon be divided among the creditors. The management of Celsius is still sitting in its HQ, remaining inaccessible to the law. At least for the moment, it is impossible to get anything specific from the company. So far, the situation with Celsius looks more complicated than in the case of 3AC, where there is at least a hypothetical possibility of fulfilling obligations.

  • The destruction is already huge, but there is a final market cleanup ahead. Both companies are too big for the crypto market, so more affiliated bankruptcies await us.

Another thing is that the current market has also gone so fragile that another major bankruptcy or forced massive sale of bankrupts — can bury the market finally. Even the healthy part of the crypto market, not in any way associated with Celsius- and 3AC-style frauds, is depleted by the long falls and is at a dangerous edge.

However, if you look at what is happening soberly, both companies have suffered a deserved fate. It is a combination of incredible arrogance and incompetence that has become widespread in the crypto industry. A long bull market and a flood of flush money led to excessive greed and a loss of caution. Even so, this story is not over yet — the fate of many related cryptocurrency companies as well as the crypto market itself also hangs in the balance.

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