Celsius Network’s bankruptcy estate has sued BitMEX-linked companies for the return of 6,360.17 Bitcoin, currently valued at about $495 million, over forced liquidations that took place during Bitcoin’s sharp market selloff in March 2020.
Celsius is not asking for what its Bitcoin was worth when BitMEX liquidated it. It is asking for the coins, or what they are worth now.
The complaint was filed on September 12 in the U.S. Bankruptcy Court for the Southern District of New York by the Blockchain Recovery Investment Consortium (BRIC), which is acting as the litigation administrator for the Celsius estate.
The lawsuit names five entities connected to BitMEX: HDR Global Trading, ABS Global Trading, Shine Effort, 100x Holdings and HDR Global Services.
Celsius alleges fraud, breach of contract, wrongful liquidation, unjust enrichment and other claims related to the way BitMEX handled leveraged positions during the market crash. The allegations have not been tested in court, and BitMEX has not yet filed a response.
Two liquidations behind the case
The dispute concerns two separate liquidations carried out within roughly a day of each other as global markets were being hit by the early COVID-19 shock.
Celsius says it liquidated 1,325.84 BTC from one of its positions on March 12, 2020.
The estate is also pursuing claims assigned to it by JST Alpha 1, a Cayman Islands investment fund backed by Celsius. JST allegedly lost another 5,034.33 BTC when its position was liquidated on March 13.
Together, the two claims total 6,360.167 BTC, which forms the basis of the lawsuit’s roughly $495 million recovery claim.
The positions were highly leveraged, meaning a relatively small move in Bitcoin could trigger a forced close when the collateral supporting the trades fell below required levels.
Dispute over BitMEX’s system
Celsius’ case focuses not simply on the fact that the positions were liquidated, but on how BitMEX’s liquidation system operated during the crash.
According to the complaint, BitMEX controlled the mechanisms used to determine when customer positions would be liquidated as well as an insurance fund that could receive proceeds from liquidations.
Celsius alleges that this created a conflict because the exchange could benefit from the liquidation of customer collateral.
The estate claims BitMEX’s system was designed in a way that allowed the exchange to profit from market stress and alleges that liquidation activity contributed to unusually sharp price movements in the relevant contracts.
One of the disputed events involved a Bitcoin contract whose best offer price, according to the complaint, fell from $4,502 to $3,422 within the same minute. Celsius argues that the move was inconsistent with normal market activity and formed part of the basis for its allegations concerning BitMEX’s liquidation practices.
Celsius challenges margin handling
The first liquidation also involves a dispute over additional margin that Celsius says it transferred shortly before its position was closed.
According to the complaint, Celsius sent 350 BTC of additional margin at 23:47 UTC on March 12. BitMEX allegedly acknowledged seeing the transfer several minutes later but had not yet confirmed it.
The position was liquidated before the transfer was confirmed, according to the lawsuit.
That sequence could become an important part of the court’s review because the dispute involves not only the market conditions at the time but also how the exchange processed collateral and margin during an extremely volatile period.
Impact on Celsius creditors
The lawsuit is part of Celsius’ broader effort to recover assets following the crypto lender’s collapse. The prayer for relief asks for actual damages of at least 6,360.1666 BTC or the equivalent value at current prices, return in kind of the same amount or its current market value, statutory, punitive and treble damages where allowed, and disgorgement including Insurance Fund proceeds tied to the liquidations. Interest, costs and fees are also sought.
Celsius filed for Chapter 11 bankruptcy on July 13, 2022 after freezing customer withdrawals. Its bankruptcy plan was later confirmed, with the estate pursuing recoveries and distributing assets to creditors. BRIC has been involved in pursuing claims and recovering assets on behalf of the post-effective-date Celsius debtors.
If Celsius succeeds in recovering some or all of the Bitcoin claimed from BitMEX, the proceeds could become another source of recovery for creditors.
Next steps in the case
The lawsuit was filed just 11 days before BitMEX is scheduled to stop trading on September 23. The exchange announced in July that it would wind down operations on September 23, ending an eleven-year run, with remaining positions to be force-closed as part of the process. That leaves six trading days at the time of writing.
The shutdown does not resolve Celsius’ claims. The lawsuit names several corporate entities connected to BitMEX, allowing the legal proceedings to continue as the exchange transitions away from its trading operations.
The defendants are expected to respond to the complaint as the case moves through the U.S. bankruptcy court. The court will ultimately determine whether the named entities are liable for the alleged wrongful liquidations and whether Celsius is entitled to recover the 6,360.17 BTC, its value, or additional damages.
For Celsius creditors, the case represents another potential recovery from assets lost years before the lender entered bankruptcy. It could also bring renewed scrutiny to how crypto exchanges manage liquidation systems, customer collateral and insurance funds during periods of extreme market volatility.
The complaint is Docket No. 8490 in main case 22-10964. BitMEX has filed nothing on the public record in the five days since.
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