By Jessica R. Graham (Harvard Law School)
Note: This post is the seventh post in a series of posts on bankruptcies of cryptocurrency companies and the emerging issues they pose. Previous posts in the series include:
1. The FTX Bankruptcy: First Week Motions, Jurisdictional Squabbling, and Other Unusual Developments, by Megan McDermott
2. Quantifying Cryptocurrency Claims in Bankruptcy: Does the Dollar Still Reign Supreme?, by Ingrid Bagby, Michele Maman, Anthony Greene, and Marc Veilleux
3. The Public and the Private of the FTX Bankruptcy, by Diane Lourdes Dick and Christopher K. Odinet
4. Staking, Yield Farming, Liquidity Mining, Crypto Lending – What are the Customer’s Risks?, by Matthias Lehmann et al. (University of Vienna)
5. The Treatment of Cryptocurrency Assets in Bankruptcy, by Steven O. Weise, Wai L. Choy, and Vincent Indelicato
6. FTX Bankruptcy – A Failure of Centralized Governance in the Name of Decentralized Cryptocurrencies, by Vivian Fang
This series is being managed by the Bankruptcy Roundtable and Xiao Ma, SJD at Harvard Law School, xma [at] sjd [dot] law [dot] harvard [dot] edu.
Check the HLS Bankruptcy Roundtable periodically for additional contributing posts by academics and practitioners from institutions across the country.
On January 4th, 2023, the U.S. Bankruptcy Court for the Southern District of New York issued its opinion regarding digital assets held by Celsius Network LLC (“the Debtor”). In a decision that arguably could have lasting implications for crypto bankruptcies and the crypto industry more generally, the Court held that the assets deposited with Celsius in one of its programs, the “Earn” rewards program, had been relinquished to the Debtor and thus are to be considered assets of the Debtor’s bankruptcy estate. For customers with assets in the Debtor’s “Earn” program, this decision means that they will not be entitled to an immediate return of their invested assets. Instead, “Earn” customers will be treated as general unsecured creditors and receive payment at the end of the Debtor’s bankruptcy. Such payments will be made only after payment to any other priority creditors, and “Earn” customers will receive payments proportionate to the amount of their investments out of whatever money may be left at the end of the bankruptcy.