In a very critical hearing early next week, U.S. Bankruptcy Judge Martin Glenn in New York City will decide if the cryptocurrency assets at bankrupt firm Celsius Network LLC belong to customers or whether they belong to the company. Most importantly, the ruling will set an example for the clash over a similar problem at other bankrupt exchanges, including FTX, crypto broker Voyager Digital, and the most recent collapse of crypto lender BlockFi.
Should the judge decide in favor of the customers, they will be first in line to receive the digital assets back. On the contrary, if the judge rules that the cryptocurrencies belong to Celsius, then customers will be last in line to receive them and probably end up receiving small pennies on their dollars. The demarcation between interest-bearing “earn accounts” and “custody accounts” could also become clearer at the hearing.
What is the Reason Behind the Chaos in the Crypto Market?
A lack of standard regulations governing the crypto world in general and crypto firms, in particular, is causing havoc in the digital asset market. Companies have weak internal controls, and because there is no uniform governance in place, audits are also not thorough. These loopholes result in co-mingling of customer funds, inaccurate accounting practices, and discrepancies in related party transactions. To tackle the financial loopholes, the Financial Accounting Standards Board (FASB) is targeting the issue of proposed rules next year.
A stark example of these loopholes is the collapse of the world’s largest crypto exchange, FTX, which is searching for several billions of dollars in missing crypto assets. The new management at FTX has hired forensic investigators from the advisory firm AlixPartners to help track them.
Meanwhile, Bitcoin (BTC-USD), the most popular cryptocurrency, is trading at a 75.6% discount from its all-time high of $68,978.64 marked on November 10, 2021.