Celsius is burning cash but still can’t sell its mined Bitcoin

Celsius is betting on its bitcoin mining business to help it restructure, but both creditors and regulators don’t trust its intentions.

The bankrupt crypto lender’s balance sheet is in the red, so it’s scrambling to find liquidity to fill gaps and repay creditors. Closing DeFi loans came first, but what seems most practical now, for Celsius, is the internal mining operation.

In a July 14 statement, CEO Alex Mashinsky wrote that the lender believes its bitcoin mining over time will generate sufficient revenue for the company in the future.

A month ago, Celsius reported $5.5 billion in debt and $4.3 billion in assets, representing a $1.2 billion black hole. At the time, the cash holdings were only worth $170 million.

It is estimated that Celsius owes $4.7 billion to more than 100,000 creditors.

Celsius’ outlook for bitcoin mining

Celsius currently owns 80,850 bitcoin mining rigs, but only about half are operational. Before filing for bankruptcy, the firm planned to increase operations to 120,000 rigs by the end of 2022.

Recent estimates show that Celsius expects to generate 10,118 BTC ($244 million) this year. It believes it can mine 48% more next year, bringing its 2023 total to 15,000 BTC ($362 million) — assuming at least 11,000 rigs are online.

Celsius says it mined 3,114 BTC ($75 million) last year, just a tiny fraction of the total bitcoin holdings. The firm’s coin report filed on August 14 shows that it has 14,578 BTC and 23,348 wrapped bitcoins, worth a total of $915 million at current prices.

It’s expected to burn through cash significantly over the next three months, including spending about $5 million per month on salaries, leaving Celsius with a projected negative cash flow of nearly $34 million for this quarter.

It’s clear that Celsius can’t just rely on the mining business to cover its epic losses.

But Texas regulators don’t want Celsius to go ahead with selling its mined bitcoin. The lender has failed to outline how it plans to distribute creditors by offloading its crypto, the Texas State Securities Board (TSSB) has said.

More recently, the official committee representing Celsius’ unsecured creditors moved to block its attempts to sell mined cryptocurrency, in line with TSSB.

Lawyers representing the committee wrote in an Aug. 11 court filing that the effects of Celsius making money from the mining operation are not clear and asked for more insight.

Celsius has previously said it hopes the mining operation will help repay creditors, some of whom sent threats and hate mail to the company before it filed for bankruptcy, according to Reuters.

Celsius’s trust issues

The problem is not that Celsius wants to make money from its mining operations. It’s that interested parties are concerned that Celsius is being crafty about what they plan to do with the cash it would generate.

For Dan Besikof, bankruptcy counsel at the law firm Loeb & Loeb, Celsius’ proposal to sell its mined bitcoin is vague, making it difficult to get it approved.

“They are concerned about the breadth of the relief being sought in motion — and I tend to agree with them,” Besikof told Blockworks in an interview. “The relief requested by Celsius is so broad that they could monetize the coins and use the proceeds in a variety of ways.”

But skeptical onlookers may also believe that Celsius is vague on purpose, looking out for his own interests on the sly.

“For both the committee’s and the Texas objections, there appears to be a lack of confidence that Celsius will properly handle the monetization of its mined bitcoin and the use of the resulting proceeds based on the numerous allegations of wrongdoing prior to bankruptcy and sub – optimal capital management, said Besikof.

According to Besikof, it is probably only a matter of time before communication is sorted out between Celsius and its objectors. They will then figure out parameters around what monetization of bitcoin will look like.

“I think the committee expects Celsius to engage and work with the committee to come up with a protocol for selling or monetizing bitcoin that is acceptable to the committee and to put some restrictions around where the proceeds will be held and how they can be spent, ” he said.

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