By
Chimamanda U. Martha
April 19th, 2024
FTX Derivatives Exchange was reportedly amongst the deep-pocket investors that showed interest in coming to the aid of embattled crypto lender Celsius Network but walked away after getting the full details of the company’s finances.
As reported by The Block citing two sources close to the matter, FTX could not proceed with details of the deal when it realized there is a $2 billion hole in the company’s finances.
Earlier this month, Celsius paused withdrawals on its platform as it could not continue its regular operations due to extreme market conditions. The halt of transactions has locked in billions of dollars of user funds, one of which belongs to Ben Armstrong, the popular investor, and crypto YouTuber also known as BitBoy Crypto. Armstrong has threatened Celsius Network with a class action lawsuit, about two weeks after appearing on a show with Celsius CEO, Alex Mashinsky.
According to The Block’s report, FTX was considering providing either the much-needed financial support or making an acquisition. Besides the massive gulp in its finances, the sources claimed that FTX considers the company very difficult to deal with.
Without so much correspondence with its clients since it put a hold on withdrawals, Celsius has been exploring a wide array of options behind the scenes. While it requested that its creditors remain calm and patient that the entire process is going to take a while to be resolved, the company’s internal lawyers have advised that the firm should file for Chapter 11 Bankruptcy which will help it in the reorganization of its assets and debt.
The company’s management has been contending with this recommendation as several reports point to the fact that it is exploring other likely solutions.
How Celsius Network Entered a Rabbit Hole
Celsius Network is one of the most revered lending platforms that sought to compete with traditional banking institutions.
A recent Wall Street Journal (WSJ) report revealed that Celsius Network took more risks than an average American bank would. Through the analysis of data shared with the company’s investors at the time when it raised $400 million last October, Celsius revealed it had a total asset of $19 billion against a $1 billion equity.
This figure is higher than the median assets-to-equity ratio for all the North American banks in the S&P 1500 Composite index, which is close to 9:1, according to the WSJ. The ratio is typically higher and shows a massive risk profile that the firm will largely be unable to handle.
Celsius Network also reportedly lends out massive amounts of funds with the appropriate collateral. All of this culminated in straining the company when the digital currency ecosystem buckled in light of adverse global economic conditions.
The way forward for Celsius Network is not clear for now, however, Goldman Sachs Group Inc (NYSE: GS) is among the companies that stand to throw in a bid per reports that the financial giant has been raising funds to achieve this.