Retail depositors who entrusted their cryptocurrency to Celsius Network lost roughly 30 cents on every dollar they deposited — and a federal bankruptcy court ruled that was the best they could expect as unsecured creditors standing in the same line as institutional lenders. When Celsius filed Chapter 11 bankruptcy on July 13, 2022, it revealed a $1.2 billion hole in its balance sheet and owed customers approximately $4.7 billion in deposits. The roughly 600,000 holders of Celsius “Earn Accounts,” collectively worth $4.2 billion at the petition date, learned in January 2023 that the crypto they thought they owned actually belonged to the bankruptcy estate. No deposit insurance existed to soften the blow. The fight over who gets paid first — and how much — has defined this case from the beginning.
Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York (Case No. 22-10964) confirmed a reorganization plan in November 2023 that gave General Earn Account holders, the largest class of retail depositors, an estimated 69.7% recovery. As of early 2026, over $2.53 billion has been distributed to creditors across four rounds, with the most recent $344.4 million fourth distribution beginning in February 2026.
Table of Contents
- Why Were Celsius Retail Depositors Treated the Same as Institutional Creditors in Bankruptcy?
- What Recovery Rates Did Different Celsius Creditor Classes Actually Receive?
- How the Tether Settlement Added $299.5 Million to the Recovery Pool
- How Celsius Distributions Have Worked and Who Has Been Paid
- Tax Complications and Unresolved Issues for Celsius Creditors
- What the Celsius Case Revealed About Consumer Protection in Crypto
- What Comes Next for Remaining Celsius Distributions
- Frequently Asked Questions
Why Were Celsius Retail Depositors Treated the Same as Institutional Creditors in Bankruptcy?
The central grievance among Celsius depositors was straightforward: they believed their crypto deposits functioned like savings accounts, and they expected priority treatment over large institutional lenders when the company collapsed. Judge Glenn disagreed. On January 4, 2023, he ruled that Celsius’s Terms of Use “clearly and unambiguously” transferred ownership of deposited crypto from users to the company. That single ruling transformed hundreds of thousands of retail customers from account holders into unsecured creditors — the lowest-priority tier in bankruptcy, sharing the same legal standing as hedge funds and institutional counterparties that had lent money to Celsius. The distinction matters enormously in practice. Traditional bank depositors enjoy FDIC insurance up to $250,000, which means they recover their funds even when a bank fails.
No equivalent protection exists in cryptocurrency. When Celsius went under, retail users discovered that the yield they had earned on their deposits came with an invisible cost: they had signed away ownership of their assets. The court’s analysis hinged on contract law, not consumer protection principles, and the Terms of Use — which most depositors likely never read in full — became the definitive document. Not all Celsius account holders were treated equally, however. Users who held crypto in non-interest-bearing “Custody” and “Withhold” accounts received higher priority than Earn account holders, because those accounts did not transfer ownership to Celsius under the same terms. This created a tiered system where the vast majority of retail users, those who had deposited into Earn Accounts seeking yield, ended up at the bottom of the priority ladder.
What Recovery Rates Did Different Celsius Creditor Classes Actually Receive?
The Modified Joint Chapter 11 Plan, confirmed on November 9, 2023, with 98% creditor approval, established distinct recovery rates depending on how a creditor’s claim was classified. Class 5 — General Earn claims — represented the largest group of retail depositors and received an estimated 69.7% recovery. That means a depositor who had $10,000 in a Celsius Earn Account at the time of the bankruptcy filing could expect to recover roughly $6,970, though the actual amount varied depending on the cryptocurrency held and its value at the time of distribution. Class 2, covering Retail Borrower Deposit Claims, fared better at approximately 86.9% recovery. Class 4, designated for Convenience Claims (generally smaller claims processed through a simplified procedure), recovered around 70%.
The plan targeted an overall recovery range of 67% to 85% across all creditor classes. Celsius emerged from bankruptcy on January 31, 2024, and the reorganization spawned a new entity — Ionic Digital, Inc., a bitcoin mining company — whose performance has influenced recovery values. However, these recovery percentages are based on the value of crypto at the petition date, not at the time depositors originally bought or transferred their assets. If a depositor purchased Bitcoin at $60,000 and it was valued at $20,000 on the petition date, their 69.7% recovery applies to the lower figure. This means some depositors have effectively recovered far less than 69.7% of what they originally deposited in dollar terms, a nuance that has frustrated claimants who feel the headline recovery figures overstate their actual compensation.
How the Tether Settlement Added $299.5 Million to the Recovery Pool
One of the most consequential developments for Celsius creditors was the bankruptcy estate’s settlement with Tether, the issuer of the USDT stablecoin. Celsius had originally pursued $4.3 billion in claims against Tether, alleging mishandled bitcoin collateral. The two sides reached a $299.5 million settlement — a fraction of the original claim, but still a substantial injection of funds into the distribution pool. The Tether settlement directly shaped the fourth distribution. Of the $344.4 million announced on January 22, 2026, roughly $257 million came from the Tether resolution.
The remaining funds included $73.7 million from claims released from the Disputed and Contingent Claims Reserve and $9.4 million from forfeited claims. The fourth distribution, which began in February 2026, was expected to be the final BTC distribution, with future payouts shifting to USD and stablecoins. This settlement illustrates a broader dynamic in crypto bankruptcies: the estate’s ability to recover funds from counterparties and business partners can meaningfully affect what retail creditors receive. Had the Tether litigation dragged on or produced a smaller result, the fourth distribution would have been significantly reduced. For depositors still waiting on funds, the shift away from BTC distributions in future rounds means their remaining recovery will depend on the dollar value of whatever stablecoins or cash the estate distributes, rather than the potential upside (or downside) of receiving Bitcoin directly.
How Celsius Distributions Have Worked and Who Has Been Paid
The distribution process has been staggered across multiple rounds since Celsius emerged from bankruptcy. The first distribution began in February 2024, coinciding with the company’s emergence. A third distribution of $220.6 million launched on August 20, 2025. The fourth distribution of $344.4 million was announced in January 2026 and began rolling out in February 2026. In total, over $2.53 billion in crypto and cash has been distributed to date. As of early 2026, approximately 251,000 of 372,000 eligible creditors — about 68% — have received payments across 165 countries.
The fourth distribution covered Class 2 (Retail Borrower Deposit Claims), Class 5 (General Earn Claims), Class 7 (Withhold), Class 8 (Unsecured Loan), and Class 9 (General Unsecured). Creditors who had already set up their distribution accounts through the Stretto case portal received funds automatically, while those who had not yet completed the process needed to take action to claim their share. The tradeoff for creditors has been between speed and value. Those who accepted early distributions received crypto at whatever price it happened to be trading at during each round. Some creditors who received Bitcoin in earlier distributions benefited from subsequent price appreciation, effectively recovering more in dollar terms than the plan’s stated percentages. Others who received distributions during dips saw the opposite effect. Future distributions in USD and stablecoins will remove this volatility factor, which is both a benefit (predictability) and a limitation (no potential upside from crypto price movements).
Tax Complications and Unresolved Issues for Celsius Creditors
Receiving a bankruptcy distribution is not the end of the road for many Celsius creditors — it may be the beginning of a confusing tax situation. The IRS has not issued specific, comprehensive guidance on how to treat crypto received in bankruptcy distributions, and creditors face questions about whether their losses are deductible, how to calculate basis on distributed assets, and whether distributions constitute taxable income. The answers vary depending on individual circumstances, the type of crypto received, and when it was originally deposited. One critical warning: creditors who assume they can simply claim a capital loss for the full difference between what they deposited and what they recovered may be oversimplifying their tax position.
Bankruptcy claim losses may be treated as ordinary losses or capital losses depending on how the original deposit is classified, and the timing of when a loss is recognized (petition date versus distribution date) can change the calculation. Creditors in multiple jurisdictions face additional complexity, as tax treatment varies by country. The roughly 121,000 eligible creditors who have not yet received distributions as of early 2026 also face a practical concern: unclaimed or forfeited distributions may be redistributed to other creditors or absorbed by the estate. The $9.4 million in forfeited claims included in the fourth distribution demonstrates that some creditors have already lost their share by failing to complete the claims process. Anyone who believes they are eligible but has not yet established a distribution account through the Stretto portal should do so immediately.
What the Celsius Case Revealed About Consumer Protection in Crypto
The testimony during August 2022 hearings before Judge Glenn put a human face on the bankruptcy’s consequences. Depositors described losing their life savings, facing homelessness, and suffering mental health crises after being locked out of their accounts.
These were not sophisticated investors in many cases — they were individuals who treated Celsius like a high-yield savings account without fully understanding that no regulatory backstop existed. The Celsius case has become a reference point in ongoing debates about whether crypto platforms should be subject to banking-style regulations, including deposit insurance requirements. The court’s reliance on the Terms of Use to determine asset ownership — rather than considering reasonable consumer expectations — highlighted a gap that regulators and legislators have since tried to address, though comprehensive federal crypto regulation in the United States remains incomplete.
What Comes Next for Remaining Celsius Distributions
With the fourth distribution expected to be the final BTC payout, remaining recovery for Celsius creditors will depend on the estate’s ability to liquidate remaining assets, resolve outstanding disputes, and distribute proceeds in USD and stablecoins. The Disputed and Contingent Claims Reserve, which contributed $73.7 million to the fourth distribution, may yield additional funds as claims are resolved, but the amounts are uncertain. For the 32% of eligible creditors who have not yet been paid, the window to participate is narrowing.
The Celsius case portal at cases.stretto.com/celsius remains the authoritative source for distribution updates and account setup. Creditors who have received partial distributions should track their payments carefully for tax purposes and watch for announcements regarding any fifth or subsequent distribution rounds. The Celsius bankruptcy is winding down, but it is not yet closed — and every remaining distribution matters to the depositors still waiting to recover what they can.
Frequently Asked Questions
How much have Celsius creditors received in total distributions?
As of early 2026, over $2.53 billion in crypto and cash has been distributed across four rounds to approximately 251,000 of 372,000 eligible creditors in 165 countries.
What is the recovery rate for Celsius Earn Account holders?
General Earn Claims (Class 5), the largest retail creditor class, received an estimated 69.7% recovery based on the value of their deposits at the petition date. This does not necessarily reflect the percentage of what depositors originally paid for their crypto.
Will there be more Celsius distributions after the fourth round?
The fourth distribution is expected to be the final BTC distribution. Future payouts, if any, will be made in USD and stablecoins as the estate resolves remaining claims and liquidates assets. Creditors should monitor the Stretto case portal for updates.
How do I claim my Celsius bankruptcy distribution?
Eligible creditors must set up a distribution account through the official Celsius case portal at cases.stretto.com/celsius. Approximately 32% of eligible creditors had not yet received payments as of early 2026, and forfeited claims have already been redistributed.
Are Celsius bankruptcy distributions taxable?
Tax treatment depends on individual circumstances, jurisdiction, and the type of crypto received. The IRS has not issued comprehensive guidance specific to crypto bankruptcy distributions, and creditors should consult a tax professional to determine whether their losses are deductible and how to report any distributions received.
Why were retail depositors treated the same as institutional lenders?
Judge Glenn ruled that Celsius’s Terms of Use transferred ownership of deposited crypto from users to the company, making Earn Account holders unsecured creditors. Unlike traditional bank deposits protected by FDIC insurance, no regulatory backstop existed to give retail users priority over institutional creditors.