Celsius, a US based cryptocurrency exchange and lender, suspended all withdrawals, swaps and transfers between accounts on Monday, 13 June 2022. In a blog post, the Celsius team cited “extreme market conditions” and stated that it is “taking action today to put Celsius in a better position to honor, over time, its withdrawal obligations”.
At the time of writing, all withdrawals, swaps and transfers from Celsius remain suspended. It has been reported that Celsius has appointed Citigroup and lawyers to explore restructuring options. On Friday, it was also reported that US State regulators are investigating the accounts freeze.
It remains to be seen how a US Court would deal with users’ digital assets held by Celsius in the event of insolvency. A user may be an unsecured creditor unless they can establish a proprietary interest in assets held by Celsius. That analysis is potentially complicated where a user has transferred digital assets to Celsius or a third-party custodian which holds the private keys to those assets.
In an Australian context, we are not aware of any Court decision which has addressed the status of users’ digital assets in the event of the insolvency of a firm. However, as many readers will be aware, the Treasury recently completed a consultation on establishing a bespoke licensing regime for crypto asset exchanges, brokers and custodians. The Treasury proposal contemplates a custody regime which would require crypto assets to be held on trust for customers and appropriately segregated.