A US bankruptcy judge has delivered a significant victory to collapsed crypto lender Celsius Network, allowing the company to proceed with its explosive $4 billion lawsuit against stablecoin giant Tether over the alleged improper liquidation of Bitcoin collateral during the 2022 crypto winter.
Judge Martin Glenn of the Southern District of New York rejected key elements of Tether’s motion to dismiss, clearing the path for one of the crypto industry’s most consequential legal battles. The ruling comes as Celsius continues its remarkable recovery, having already distributed $2.5 billion to creditors since emerging from bankruptcy in January 2024.
Bitcoin Fire Sale Controversy
The heart of the dispute centers on a dramatic June 2022 liquidation event that Celsius claims cost it billions. As Bitcoin prices plummeted during the crypto winter, Tether issued a margin call on Celsius’s massive cryptocurrency holdings. What happened next forms the crux of this landmark case.
Celsius alleges that Tether executed a “fire sale” of over 39,500 Bitcoin to recover its $812 million debt, selling the cryptocurrency at an average price of $20,656 – significantly below market levels at the time. The crypto lender claims Tether violated their lending agreement by failing to honor a contractual 10-hour waiting period before liquidating the collateral, instead rushing to sell the assets and transferring them to Tether’s own Bitfinex accounts.
At today’s Bitcoin prices of approximately $109,369, those 39,500 Bitcoin would be worth over $4 billion – a staggering sum that underscores the magnitude of Celsius’s claims. The lawsuit alleges this premature liquidation constituted breach of contract, violated “good faith and fair dealing” principles, and represented fraudulent and preferential transfers under US bankruptcy law.
Tether had aggressively fought the lawsuit, dismissing it as “baseless” and a “shakedown” while arguing that US courts lacked jurisdiction over the British Virgin Islands-incorporated company. However, Judge Glenn found that Celsius successfully established sufficient US connections through Tether’s use of American communications, personnel, and financial accounts.
Celsius Recovery Story
While the legal battle continues, Celsius has achieved what many thought impossible following its spectacular 2022 collapse. The company, which once managed over $25 billion in assets before imploding amid the crypto winter, has transformed from bankruptcy pariah to creditor champion.
Since implementing its repayment plan in January 2024, Celsius has distributed $2.5 billion across 251,000 creditors through multiple payout rounds. This represents an impressive 93% coverage of all claims and nearly two-thirds of eligible creditors.
The success comes despite the criminal conviction of former CEO Alex Mashinsky, who received a 12-year prison sentence for fraud and has forfeited any future benefits from Celsius assets.
The case represents more than just a financial dispute – it’s a test of accountability in the crypto industry’s Wild West era. As Celsius continues pursuing its $4 billion claim while simultaneously rewarding creditors, the outcome could establish crucial precedents for how crypto companies handle collateral and honor contractual obligations during market stress.
