The crypto industry’s goal of disrupting finance hinges on the success of a new company formed from the ashes of bankrupt lender Celsius Network.
In June, an exemption in the U.S. bankruptcy code will let Celsius become a new publicly-traded digital stock without having to go through the typical initial public offering process of the Securities and Exchange Commission, which has cracked down on the crypto industry.
It may be another avenue where investors can lose their money in a crypto rout. But if the plan is approved and it’s a success, it could rewrite the way stocks and other securities are owned and traded, and offer an alternative business model to traditional exchanges and transfer agents.
Of course, the staying power of institutions like NYSE make it a long shot that they’ll be overtaken, but more mainstream companies like Nasdaq adopting parts of blockchain technology shows it’s already having an influence.
People involved in the process say the SEC has been in contact with the firms involved in the restructuring and is monitoring developments, which could provide an opening to additional digital-asset securities without going through bankruptcy.
Shares of the new public company, which will be owned by Celsius creditors and run by investor NovaWulf, will be the first issued on the blockchain. Crypto advocates hope it will prove that it’s cheaper and faster than older platforms since trades can settle in seconds instead of the traditional system of one business day (or more).
The bankrupt crypto lender is planning to trade on an alternative trading system created by SoFi co-founder Mike Cagney. The new company would publish the same SEC filings — quarterly financial statements and such— as any other public company. Crypto-curious institutional investors wary of unregulated private options could be interested buyers on the platform.
Celsius — with close to 80,000 unsecured creditors and roughly $1.5 billion in assets — would be the second-largest publicly traded digital-asset company if the plan is approved, behind Coinbase.
Section 1145 of the U.S. bankruptcy code makes this possible, providing an exemption that frees the creditors from needing the SEC’s sign-off. The watchdog has been slow to evaluate new registrations for digital-asset stocks, several industry players complain, as SEC Chair Gary Gensler targets crypto activities.
The SEC won’t be the only one glued to the development. Any creditor of a bankrupt digital-asset company — of which there are many — may consider the use of Section 1145. The new setup could provide a path to getting at least some of their money back.
A successful start to Celsius 2.0 would also give the SEC more firepower in its regulatory turf war over crypto with the Commodity Futures Trading Commission.
Room for Disagreement
There’s no escaping the industry turmoil, no matter how many regulators sign off.
Crypto firms need capital and more participants to truly take off. Software engineer Molly White — who runs the website Web3 is Going Just Great — has chronicled the problems and even has a counter for grift and hacks.
- Cagney’s Figure Securities, which runs the alternative trading system that on the Provenance blockchain, lowered its fundraising target earlier this year as the venture market dried up. A successful relaunch of Celsius could be a boon for the startup.