Celsius lawyers claim that user funds belonged to the company and not the user as users gave up the legal rights to their crypto

Celsius’s 1.7 million registered users across over 100 countries gave up title to the crypto they deposited into Earn and Borrow accounts, according to the firm’s lawyers. They reaffirmed that user funds essentially belonged to the company and not the user, with potentially one major exception.

On July 18, at the first bankruptcy hearing for Celsius lawyers from the Kirkland law firm led by Pat Nash detailed how retail users with Earn and Borrow accounts transferred the title of their coins to the firm as per its terms of service (ToS). Consequently, Celsius is free to “use, sell, pledge, and rehypothecate those coins” as it wishes.

Though, a legal question has arisen about whether Custody account holders recall the title for their assets. Celsius ToS declares that the firm cannot use coins in Custody accounts without user consent. Though the lawyers questioned whether this holds for crypto that the firm is currently in possession of. In their indication of the case, they asked:

“Are the crypto assets in Celsius’ possession property of the estate? Is the answer to this question different for crypto assets held under the Custody vs. the Earn program?”

The Custody program was launched in April for non-accredited US investors as some states across the US issued cease and desist orders on Celsius’s Earn program.

On June 13 Celsius stopped rewards and withdrawals for all users and have paused margin calls, liquidations, and issuing new loans since then.

Attorney David Silver totaled up Celsius’s claim to users’ funds in a July 18 tweet. He wrote that users should “stop thinking of it as *your* crypto” because it technically all belongs to the firm.

Financial Times reporter Kadhim Shubber tweeted that Nash announced that Celsius users would be “interested in riding out this crypto winter” and let Celsius hold funds rather than sell. He added that this strategy would permit users the chance to “realize their recovery through an appreciation in the crypto macro environment.”

Essentially, Celsius would like to wait for the market to turn around before selling to confirm it can stay afloat, then pay off users with assets that have more value.

The firm also declares that it can sell Bitcoin (BTC) that it mines through its subordinate mining operation to pay off debts. Alex Mashinsky, Celsius CEO, claimed in a bankruptcy filing document that his company planned to create about 15,000 BTC through 2023, but David Silver was doubtful about the claim.

Silver tweeted after the hearing concluded. At about the 1:07 mark in the conversation, he specified that Celsius’s claim of being a Bitcoin mining company is deceitful.

“Can you imagine right now that Patrick Nash, basically, and the Kirkland lawyers have now told you that Celsius is simply a Bitcoin mining company? Because that’s all fluff.”