Coinbase and Gemini present at the Celsius auction

The judicial auction whereby the assets of the bankrupt Celsius can be purchased will be held tomorrow: the US crypto exchanges Coinbase and Gemini will also participate in this auction.

The auction will be held in New York, at Kirkland & Ellis.

Participating in this auction will be two consortia, Fahrenheit and Blockchain Recovery Investment Committee.

The Fahrenheit consortium is owned by Arrington Capital, US Data Mining Group, Proof Group Capital Management, Steven Kokinos, and Ravi Kaza. Arrington Capital in turn is owned by blockchain investor Michael Arrington, while Steven Kokinos is the former CEO of Algorand.

Yesterday, Arrington said that the Fahrenheit consortium is also backed by Coinbase. 

Instead, the Blockchain Recovery Investment Committee consortium includes Van Eck Absolute Return Advisers Corporation, Global X Digital, GXD Labs, Plutus Lending, Abra, and Gemini Trust Company. 

Thus the two US crypto exchanges will compete for the purchase of Celsius’ assets as competitors, that is, as part of two separate contending consortia. 

The Celsius auction: Coinbase and Gemini will participate as well

The starting point is NovaWulf Digital Management’s offer, i.e., a direct contribution of between $45 million and $55 million, and the creation of a new public platform wholly owned by Celsius‘ creditors.

Under this original proposal, Celsius customers should be able to recover up to 70% of their funds.

To this, the Fahrenheit consortium adds the creation of a new company whose sole purpose is to grow the value of the assets taken over so as to get to pay the creditors. 

So while NovaWulf’s original proposal called for repayment of only 70% of the clients’ funds, Fahrenheit’s proposal seems to be aiming for full repayment, or at least greater than 70%. 

In contrast, details of the Blockchain Recovery Investment Committee’s bid are not known, but clearly it would have a realistic chance of being victorious only if it were better than Fahrenheit’s. 

With this auction, all of Celsius’s assets are being sold to the highest bidder, as it has gone bankrupt and cannot resume operations. Whoever takes over these assets must then proceed to repay Celsius’ creditors, including its users, in part or in full. 

The recovery of funds

Thus, the process that will probably lead to the recovery of funds is still very long, and from a strictly technical point of view it has not even begun yet. 

In fact, only after the transfer of ownership of the assets will the new owner be able to study a plan for the recovery of the funds, and propose it to the creditors. 

In the past, these processes have taken years, and if we add to that the fact that 10 months have already passed since the closure of the business, the timeline for recovery for creditors looks decidedly long. 

It is worth mentioning that the reason Celsius was unable to return all the funds to its customers is that it no longer had all of them on hand. 

Thus, the assets that will be taken over by Fahrenheit or the Blockchain Recovery Investment Committee are not enough to cover the repayments of all the funds from all the creditors. 

Therefore, either they will have to proceed with a credit cut, ending up returning only a portion of their funds to the creditors, or they will have to come up with something to make these assets gain in value over time so that they can repay the creditors more than what is available to date. 

In the event that they go ahead with the latter procedure, the timeline will be even longer, because it would definitely take some time for the acquired assets to appreciate in value tomorrow in a meaningful way. 

In addition, such a procedure would definitely also involve additional risks, since there are no gains without risks, so it is not certain that it will be the option actually chosen. 

The failure of Celsius

Celsius promised its customers significant interest income on deposited cryptocurrencies. 

The problem is that to produce higher-than-average interest they had to take some extra risk. This, coupled presumably with mismanagement of these additional risks, led to the generation of losses with which they were not only no longer able to pay back the interest, but also had their clients’ deposited fund cover reduced. 

To be fair, many had warned that the interest paid by Celsius seemed a bit too high to be sustainable in the long run, and when the crypto market collapsed due to the implosion of the Terra/Luna ecosystem, the feared scenario of the unsustainability of that business suddenly materialized. 

Excessive recklessness, and investors’ lack of awareness of high risk, did the rest.