MSTR Cat

Crypto Law/Level IV · Holders' traps/4.1 Custody/Lesson 4

Celsius: when the terms of use decided ownership

In the Celsius bankruptcy, a clause most depositors never read transferred ownership of their coins to the company, turning them into unsecured creditors.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Read before depositing, free: if a yield product’s terms grant the platform ‘all right and title’ or the right to rehypothecate, you become an unsecured creditor (In re Celsius, Bankr. S.D.N.Y. 4 January 2023); plain custody accounts were handled separately.
  2. Lowest-risk lawful route: keep coins in your own wallet or a custody-only account that bars lending, and accept no yield; US rewards earned are ordinary income when received, so declining yield also avoids that tax.
  3. Save each terms version you accept with its date at no cost, because platforms like Celsius could amend unilaterally; the version in force at the petition date decides ownership.
  4. If a platform fails, file the free proof of claim and keep withdrawal records for the 90 days before filing; under 11 U.S.C. §547 those withdrawals may be clawed back (Celsius settled above $100,000 at 27.5%).

MaterialsJudge Martin Glenn’s Memorandum Opinion and Order Regarding Ownership of Earn Account Assets, In re Celsius Network LLC, No. 22-10964 (Bankr. S.D.N.Y. 4 January 2023)The terms of any yield, ‘earn’ or lending product you use, saved with the date you accepted themLesson 4.1.1 on custody and lesson 4.1.3 on FTX, for contrast

Wonder

  1. How can clicking ‘I agree’ hand my coins to a company?
  2. Were all Celsius customers treated the same way?
  3. What happened to the people who ran Celsius?

Explore

  1. Celsius Network was a crypto lending platform that paid customers rewards for depositing coins in its ‘Earn’ program and lent or invested those coins. On 13 June 2022 it paused all withdrawals, citing extreme market conditions, and in July 2022 it filed for Chapter 11 in the US Bankruptcy Court for the Southern District of New York. According to the court, Celsius had about 600,000 Earn accounts at the petition date, holding crypto worth about $4.2 billion as of 10 July 2022. The question that came first was simple to ask and hard to answer: who owned those coins?
  2. Chief Judge Martin Glenn answered on 4 January 2023. He treated ownership as a question of contract law. Celsius had adopted eight versions of its Terms of Use, each accepted by clicking, a form courts call a ‘clickwrap’ agreement. Applying New York law, he found that the terms formed a valid contract and were ‘unambiguous’. When customers deposited crypto in Earn accounts, the coins became Celsius’s property, and those still there at the petition date became property of the bankruptcy estate. Earn depositors were therefore unsecured creditors, not owners waiting for their coins.
  3. The decisive words were in Terms Version 8, effective 15 April 2022. In return for rewards, the customer granted Celsius ‘all right and title to such Eligible Digital Assets, including ownership rights’, and the right to ‘pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use’ them. Rehypothecation means re-using assets received from one party as collateral for the platform’s own borrowing. The terms also warned that if Celsius became bankrupt, the assets ‘may not be recoverable’ and the customer might have no rights beyond those of a creditor. A reward that looks like interest is often payment for exactly this transfer.
  4. Not every customer was in the same position. The judge stressed that his ruling did not decide ownership of assets in Celsius’s Custody program, Withhold accounts or Borrow program, which had different terms and were handled separately. He also noted that if the Earn accounts were securities, claims to unwind the purchases would likely be subordinated under 11 U.S.C. §510(b) and still rank no higher than general unsecured claims. Compare FTX (lesson 4.1.3), where the terms said customers kept title but the assets were gone: the contract matters, but it is only one part of the outcome.
  5. The case then moved on. The bankruptcy court approved a plan on 9 November 2023, and Celsius emerged on 31 January 2024, beginning distributions of crypto and cash to creditors, along with shares in a new bitcoin-mining company, Ionic Digital. Its founder, Alex Mashinsky, pleaded guilty in December 2024 to two fraud counts. On 8 May 2025 Judge John G. Koeltl of the Southern District of New York sentenced him to 12 years in prison. Customers who withdrew shortly before the collapse later faced separate lawsuits seeking to recover those withdrawals, a risk covered in lesson 4.3.6.
  6. A practical check for any yield or earn product: search its terms for ‘title’, ‘ownership’, ‘lend’, ‘rehypothecate’, ‘creditor’, ‘bankrupt’ and ‘amend’. If the platform may use your coins as its own, you are lending to it, and in a failure you would likely rank as an unsecured creditor. Note whether the platform can change the terms unilaterally, as Celsius’s terms allowed, and save each version you accept with its date. How rewards and losses are taxed is covered in lesson 2.2.5. This lesson explains the risk; it does not advise for or against any product.

Key facts

  • Celsius Network paused all customer withdrawals on 13 June 2022 and filed for Chapter 11 in the Southern District of New York in July 2022.
  • On 4 January 2023 Chief Judge Martin Glenn held that crypto deposited in Celsius Earn accounts became Celsius’s property under its unambiguous Terms of Use.
  • Celsius Terms Version 8, effective 15 April 2022, granted Celsius ‘all right and title’ to eligible digital assets, including ownership rights.
  • Judge Glenn’s Earn ruling expressly did not decide ownership of assets in Celsius’s Custody, Withhold or Borrow programs.
  • Celsius emerged from bankruptcy on 31 January 2024 and began distributions to creditors.
  • Alex Mashinsky was sentenced on 8 May 2025 to 12 years in prison after pleading guilty to two fraud counts.

Exercise nine, six, three, one

9CollectList up to 9 clauses or phrases from the terms of a yield, earn or lending product you use or have seen, such as ‘all right and title’, ‘may lend’, ‘rehypothecate’ or ‘we may amend these terms’.
6ClusterSort them into 6 categories: ownership transfer, permitted uses of your assets, risk warnings, changes to terms, governing law and courts, and withdrawal limits.
3DistillReduce the 6 categories to 3 groups: clauses that make you an owner, clauses that make you a lender or creditor, and clauses whose effect you are unsure of.
1CrystallizeWrite 1 sentence stating whether, under the terms you reviewed, you would be an owner or a creditor if the platform failed, and why.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS