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Crypto In Bankruptcy: Tax Apocalypse For Celsius Customers?

By Garrett L. Brodeur
Bloomberg Tax Management Memorandum
January 30, 2023

Introduction: In the aftermath of a series of bankruptcy filings by major cryptocurrency companies, a recent ruling on an ownership dispute in the bankruptcy case of Celsius Network LLC has placed certain interest-bearing account holders in a difficult position. The ruling has industry-wide repercussions and tax consequences that require careful analysis.

Celsius Network LLC has functioned as a centralized cryptocurrency lending and staking platform since its inception in 2017. Among its services, Celsius allowed customers to deposit cryptocurrencies into custodial Celsius wallets to earn weekly interest payments through its “Earn” program. In June 2022, customers who had made such deposits lost access to their funds when Celsius froze withdrawals due to “extreme market conditions.” One month later, Celsius and its related entities filed for bankruptcy, raising an important question: Did the cryptocurrency held by customers in Celsius “Earn” accounts belong to the customers or to the Celsius bankruptcy estate?


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Published with permission from the Bloomberg Tax Management Memorandum.