‘Coinbase Rule’ cuts payouts to Celsius creditors by one-third

A group of creditors of the bankrupt crypto lender Celsius is raising objections over alleged payment reductions of 30% or more compared to what was originally promised under the bankruptcy plan.

The reduction is purportedly attributed to a rule limiting distributions through Coinbase exchange to only 100 Celsius corporate accounts, leaving some creditors to accept cash instead of crypto payments. With the surge in Bitcoin and Ether prices since the distribution agreement, small business creditors are left with reduced payments compared to the top 100 business accounts on Celsius.

One Celsius creditor in Australia, owed 0.182 BTC and 3.05 ETH, claims to have been informed by the Celsius debtors’ law firm, Kirkland & Ellis, that they would not receive the original amount promised but instead $15,741 in cash—36% less than the cryptocurrencies’ market value. The creditor alleges that a top-100 Celsius corporate creditor will receive the full amount of promised crypto.

Email exchanges between the creditor and a Kirkland & Ellis representative seem to confirm the creditor’s receipt of a cash payment instead of equivalent crypto. The representative cited a Coinbase rule limiting distributions to 100 corporate creditors as the reason for reduced payments.

Several creditors, including those from the United States and Hong Kong, have voiced their concerns to the presiding judge, Martin Glenn, over the alleged Coinbase rule’s impact on payment reductions. They argue that the selection of 100 corporate accounts for crypto distribution lacks transparency and fairness.

The Celsius bankruptcy plan, confirmed by the Court in November, uses different crypto prices to determine creditor payments. While most creditors are to be paid in crypto rather than U.S. dollars, the alleged Coinbase rule has resulted in significant disparities in payments. The plan’s reliance on “petition date” and “effective date” prices further complicates the payment calculations.