Bankruptcy judge rules Celsius Network owns users’ interest-bearing crypto accounts

Cryptocurrencies deposited into interest-bearing accounts at Celsius Network were ruled to belong to the company by a federal bankruptcy judge.

The judgement gives Celsius ownership of the $4.2 billion in cryptocurrencies that users deposited into its high-interest Earn program, according to a filing from the U.S. bankruptcy court.

Celsius allowed users to deposit cryptocurrencies and get weekly interest payments. The platform offered as much as 18% interest per year.

As of July 10, 2022, the accounts held a collective value of over $4 billion, according to the filing. Stable coins made up about $23 million. The judge ruled that all of that is owned by the estate.

The filing stated that anycryptocurrencies that were deposited into Earn Accounts became Celsius's property.

Celsius, which was once one of the world's largestcryptocurrencies lenders, filed for Chapter 11 protection. Celsius said it had between $1 billion and $10 billion in assets and debts.

Celsius froze withdrawals in June due to extreme market conditions. The freeze was always there. The judge ruled that the assets in those accounts are owned by Celsius.

Thousands of Celsius customers have argued that their deposited funds were theirs. Celsius fought with customers in court over ownership of deposited funds as it wanted to sell about $18 million worth of stable coins to fund its organization. Celsius is able to sell those assets.

It seems unlikely for those who want to fight the court ruling to get their money back.

Priority for receiving frozen funds is usually given to secured creditor. The filing states that the account holders with the Earn program areUnsecured Creditors of Celsius and that their recovery depends on distributions toUnsecured Creditors under a Chapter 11 plan.

If only some Account holders prevail with their arguments that they own the assets in their accounts, they hope to recover 100% of their claims, while most of the Account holders are left asUnsecured Creditors and may recover only a small portion of their claims.

Going forward, this verdict can set a precedent for investors in the industry and what one's terms of use really mean. It's possible that this could point to what will happen with other Chapter 11 bankruptcies in the space like FTX, BlockFi and others.