Who owns cryptocurrency held by a cryptocurrency exchange? Do the cryptocurrency assets belong to the customers who deposited the crypto with the exchange, or do the cryptocurrency assets belong to the exchange itself? The answer to this question will have huge significance, both in terms of creditor recoveries as well as preferential transfer liability exposure.
In consideration for the Loan, you grant Celsius the right, subject to applicable law, without further notice to you, to hold the Digital Assets provided as Collateral in Celsius’ name or in another name, and to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets, separately or together with other property, with all attendant rights of ownership, and for any period of time, and without retaining in Celsius’ possession and/or control a like amount of Digital Assets or any other monies or assets, and to use or invest such Digital Assets at Celsius’ own risk.
Loan Terms, Version 7 at 14 (emphasis added). The General Terms provided:
[N]otwithstanding the use of expressions such as “borrow,” “loan,” and “collateral” etc., which are used to reflect terminology adopted in the market for transactions of the kind provided for pursuant to the Loan Agreement, title to the Digital Assets shall pass from you to CNL on the basis of an outright sale, subject to your right to request at a later date the delivery of equivalent (but not identical) Digital Assets to those sold to CNL.
General Terms, Version 5 at 8 (emphasis added).
The court held that, taken together, these provisions “clearly and unambiguously transferred ownership of collateral to the Debtors.” Accordingly, the cryptocurrency held in the Earn Accounts was property of the Celsius bankruptcy estate.
We now have two rulings on cryptocurrency ownership, both of which held that the underlying agreements transferred ownership of the cryptocurrency to the debtor exchanges. The latest ruling in the Celsius case is sure to have significant implications.