Off the chain

A yacht. A mansion. How far did the excesses of Three Arrows Capital’s founders go? Details are now emerging through bankruptcy filings. One of the founders was thinking particularly big before crypto prices tumbled. “Thinking about buying all the good-class bungalows in Singapore and turning them into parks & regenerative farming,” Zhu Su tweeted last year. He also mused about Elon Musk building a “self-driving” ship that would mine bitcoin at sea. Given how Tesla’s Autopilot has been going, I’m not sure I’d board that vessel.

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Long story short

Celsius customers who have been locked out of their cryptocurrency accounts for more than a month may have to choose between taking a discount on what they are owed in cash or holding out for whenever token values recover. At a bankruptcy hearing Monday, attorneys for the crypto lending company detailed its plan to resurrect the business.

"This is not a liquidation," said Patrick Nash, an attorney with Kirkland & Ellis, representing Celsius. "We do not intend to force customers to take their recovery in fiat currency. All is not lost."

Celsius customers are angry. That much was acknowledged by Nash. "The anger and frustration has been exacerbated, in my view, by the company's relative silence" leading up to the bankruptcy, he said.

• The company filed for Chapter 11 bankruptcy in New York Southern District Court last week and, in a filing Monday before the hearing, laid out its plan to recover from its current crisis.
• That includes a plan to "provide customers with the option, at the customers’ election, to recover either cash at a discount or remain 'long' crypto," as described in the presentation. The court would have to approve that plan.
• The company had about 300,000 customers worldwide as of July, according to its bankruptcy filings. Many of them will want to get whatever assets they can paid back in U.S. dollars or another fiat currency, Nash said, but the company is also betting there is a larger number "interested in riding out what is being called crypto winter."

The financial picture for Celsius is not pretty. CEO Alex Mashinsky, who was on video in a suit and tie during Monday's hearing, detailed the company's significant cash shortfall in a bankruptcy court filing last week.

• Celsius has a $1.2 billion shortfall between its liabilities and assets. Its liabilities include $4.7 billion owed to Celsius users, according to Mashinsky's filing.
• Founded in 2017, Celsius pitched itself as a banking alternative and offered high-yield accounts to users by investing or lending their deposits. But as crypto prices rapidly dropped, the company froze all withdrawals, swaps and transfers between accounts on June 12, citing extreme market conditions.
• New numbers filed Monday show just how quickly the crypto crash wiped out Celsius. The company had $14.6 billion in crypto assets on March 30 and just $1.75 billion by July 14. Users pulled out nearly $2 billion from their accounts in that time, while the market value fell by $12.8 billion.

Celsius wants to mine itself out of trouble. The company has a bitcoin mining subsidiary, Celsius Mining.

• Celsius hopes to mine about 10,000 bitcoin in 2022 and expand from there in 2023, which could be a "valuable source of recovery," Nash told the court, assuming the crypto market rebounds.
• Celsius sold off some of its machines at fire-sale prices in June before its bankruptcy filing, but it still has more than 80,000 rigs.
• The company is also selling off assets and seeking "third-party investment opportunities," as described in its presentation.

Both Celsius and competing crypto lender Voyager, which filed for bankruptcy a week earlier than Celsius, hope to restructure as going concerns and will need customers to trust them with their money to do so. That could be a hard sell, given the anger that Celsius’ own attorney acknowledged Monday.

Restricting withdrawals "erodes customer trust" and makes it much harder to reorganize in bankruptcy court, wrote Adam Levitin, a law professor at Georgetown University who studies bankruptcy, in an op-ed published Monday by The Deal. "No customer will trust a financial services business that has lost his or her money," Levitin wrote. "When financial services businesses file for bankruptcy, they generally end up liquidating. The same is likely to be true for cryptocurrency companies." If Celsius wants to prove itself an exception to the rule, it will have to hope its customers’ hunger for crypto is stronger than their anger.

— Ryan Deffenbaugh (email | twitter)

On the money

On Protocol: Bankrupt crypto hedge fund Three Arrows Capital owes $3.5 billion to creditors. The largest creditor, with a $2.3 billion loan, is a unit of crypto prime broker Genesis, which is owned by Digital Currency Group.

Coinbase got a regulatory thumbs-up in Italy. The company said Monday it has approval from Italian regulators to continue operating in the country, after the country's Organismo Agenti e Mediatori set new rules for firms offering crypto trading.

Dutch regulators hit Binance with a $3.4 million fine. The Dutch central bank, De Nederlandsche Bank, said Binance was operating without proper registration. The company said it is working with the regulators and will appeal.

The Consumer Financial Protection Bureau wants to prod banks to pay back more customers who are the victims of scams on Zelle and other money-transfer services. The agency is planning to release new guidance in the coming weeks.

Also on Protocol: The FBI issued a warning Monday for financial institutions and investors urging them to watch out for fake crypto apps, which have already cost victims more than $40 million.

Voyager and Celsius have the same law firm guiding their bankruptcies. Kirkland & Ellis, the world's largest law firm, is keeping busy in the crypto crash.

Goldman Sachs' consumer and wealth management unit, including the digital bank Marcus, posted record revenue of nearly $2.2 billion in the second quarter. That's up 25% from the same period last year, according to the company. Marcus is still reportedly bleeding money, though.

Overheard

“Someone just called a brief sync up before a bigger meeting the ‘premint’ and I’m done for the day,”saidHomebrew partner Hunter Walk, and … yeah.

Deal flow

German digital insurer Wefox raised $400 million in its series D round. Abu Dhabi’s Mubadala led the round, valuing the unicorn at $4.5 billion despite generally falling valuations in insurtech.

Lightspeed Venture Partners led a $25 million series A round in Robinhood’s European competitor Lightyear. Richard Branson also participated in the round.

New York crypto prime brokerage Hidden Road Partners raised $50 million in a series A funding round. Castle Island Ventures led the round, with participation from FTX and Coinbase Ventures.

Mysten Labs is looking to raise a $200 million series B round led by FTX Ventures, reports The Information. It would put the Palo Alto blockchain infrastructure startup at a $2 billion valuation.

DeFi lending protocol Morpho raised $18 million in a round led by A16z and Variant. The round, raised via a native token sale, also saw participation from Coinbase Ventures, Spark Capital, Standard Crypto, Cherry Crypto, Nascent and Semantic Ventures.

Indian startup FPL Technologies, known best for its OneCard credit card, raised over $100 million in a series D round. Temasek led the round with participation from Sequoia Capital India and Hummingbird Ventures. This puts the company at a $1.4 billion post-money valuation.

Financial infrastructure and data analytics company Pico raised $200 million from PE firm Golden Gate Capital. The company says it will use the funds primarily for M&A.

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