Loeb Restructuring & Bankruptcy partner Daniel Besikof is quoted in a CoinDesk article discussing the high volatility of cryptocurrencies and the extreme market conditions which led to Celsius, a cryptocurrency lender, to freeze customer withdrawals in early June 2022.
According to the article, although the crypto market has dwindled as of late, an equally dramatic upswing in cryptocurrency prices could conceivably happen before the Celsius case – in the U.S. Bankruptcy Court for the Southern District of New York – is concluded. Daniel told the publication that while the option to take recoveries in crypto sounds like it could be a boon for Celsius account holders, much depends on what that means in practice.
“The general rule is that creditors in bankruptcy have claims, denominated in [U.S. dollars], measured as of the date of the bankruptcy filing. It will be interesting to see how that rule is applied in this unique setting,” he said.
Daniel explained that recoveries on a claim are likely to decrease when the worth of the cryptocurrency falls. On the other hand, if cryptocurrency doubled, there’s also a possibility that creditors would be able to recover a higher claim. At the end of the day, Daniel told CoinDesk that it will be up to the courts to decide what happens.
“I could see exchanges arguing that the account holder’s recovery is capped at $1 million, even if the exchange is flush with cash and crypto assets from the price increases,” he said.
“That argument would create a potential windfall for the equity holders, but would be highly detrimental to account holders. This concern could be alleviated if the plan provided for the return of some or all of the customer’s crypto,” Daniel added.
To read the full article, please visit CoinDesk’s website.