Maximizing Celsius Bankruptcy Recovery: The Crypto vs Equity Dilemma

Simon Dixon, CEO of BankToTheFuture, recently held a community call to provide guidance to Celsius users on maximizing their recovery from the ongoing Celsius bankruptcy case. His advice centered around the decision between taking more of the distribution in crypto assets like Bitcoin and Ethereum, or in equity of the new Celsius entity that will emerge post-bankruptcy.

The Crypto vs Equity Decision

According to Dixon, those who want more of their distribution in crypto will be forgoing some of their recovery and giving that to equity holders. The equity portion will match up those who want more equity with those who want more crypto. Dixon explains:

“If you end up with more crypto, then it goes to a 70% recovery. If you end up with more Equity, then you can get 130% recovery. Basically, those that want more crypto are forgiving, are forgoing some of their recovery in crypto and giving some of that recovery to you in equity.”

He notes that loans will get priority over crypto distributions, while those with earn accounts who want more equity are highly likely to see their demand filled. The overall distribution will be a weighted average based on demand.

NewCo Structure

Dixon outlines the structure that will emerge from the bankruptcy process:

“You have Celsius with a commitment to close in about 90 days. Celsius is going to appoint a sponsor to manage assets, which is Fahrenheit. Fahrenheit has a management agreement to run mining, staking, etc.

Then you have NewCo, which we own 90% of after dilution. Fahrenheit invests $50M into NewCo and gets locked in shares. Celsius gives $450M in crypto to NewCo.

NewCo goes public on NASDAQ and we get shares. Fahrenheit is separate – it’s the management company we don’t own.”

Crypto Distribution Mechanics

According to Dixon, the crypto distribution will go to the original account holders and wallet addresses due to anti-money laundering requirements. For example, individuals will only be able to withdraw to a personal crypto wallet or exchange, while those with IRA accounts on Celsius will only be able to withdraw to a compatible IRA provider. There will need to be separate distributions for separate legal entities.

He notes that all stablecoins like USDC were already spent by Celsius, so distributions will only be in BTC and ETH.

Tax Implications

On the critical topic of taxes, Dixon cautions that receiving the distribution creates a taxable event, though it does not necessarily mean taxes are owed. He advises creditors to determine their cost basis and work with tax professionals to calculate implications.

For non-BTC/ETH deposits converted to BTC/ETH, he notes that most interpretations use fictitious dollar values at the time of deposit and distribution to set the tax price. But he stresses that he is not a tax professional, so creditors should consult their own advisors.

Litigation Recoveries

Beyond crypto and equity, Dixon notes that litigation recoveries represent a third potential recovery stream for creditors. The disclosure statement values this at zero, but there is a $50M litigation budget and administrator to pursue approximately 140 different claims. He expects litigation proceeds to come in pieces over time, which will be distributed periodically to creditors.

Voting and Next Steps

In summary, Dixon advises creditors to determine their optimal recovery strategy, understand timing and tax implications, and prepare to vote on the proposed plan. He will cover voting specifics in depth next week after analyzing the draft plan supplement. Finally, he cautions creditors to set up the necessary accounts, wallets and tax plans to receive their distribution.

Simon emphasized the unprecedented nature of this bankruptcy’s scale and complexity. He advised creditors to educate themselves, plan carefully, and make decisions strategically to maximize their recovery from this “shit show.”