Celsius accuses BitMEX of exacerbating a series of liquidations during the crash in 2020, seeking restitution of 6360 BTC from BitMEX

Written by: ChandlerZ, Foresight News

Six years after the Bitcoin crash in March 2020, Celsius has sued for strong liquidation losses totaling approximately 6360 BTC.

According to CoinDesk, on September 12, this cryptocurrency lending platform filed a lawsuit in the U.S. Bankruptcy Court for the Southern District of New York against five associated entities of the cryptocurrency derivatives exchange BitMEX through bankruptcy recovery agencies, seeking the return of Bitcoin or compensation based on the coin price at the time of the trial, with the involved assets valued at approximately $495 million.

BitMEX is set to stop trading services on September 23, just 11 days after the lawsuit was filed. Celsius accuses the exchange of failing to take reasonable measures when prices deviated significantly from external markets and customers could not manage their positions, claiming that it harmed customer interests through its controlled liquidation systems, insurance funds, and proprietary trading department, presenting lawsuits for breach of contract, fraud, market manipulation, and unjust enrichment.

Two rounds of futures liquidations

Celsius used to pay interest to users who deposited cryptocurrency assets and then obtained profits through lending and investment. Apart from opening a trading account on BitMEX, the company also invested in the JST Alpha 1 fund, which managed trading through another account. The two liquidations in question involved long Bitcoin futures that expired in June 2020, with customers using BTC as margin, bearing losses from price declines.

From March 12 to 13, 2020, Bitcoin fell from about $8000 to $4000 in one day. Cryptocurrency data firm Coin Metrics reported that during its review of the month, about $1.1 billion in nominal value of long contracts was liquidated on BitMEX between 9 AM March 12 to 2 PM March 13. The firm analyzed that as buying depth shrank, the liquidation system continuously received new long positions and sold to close, with additional selling pressure likely to depress prices further and trigger subsequent liquidations.

According to the lawsuit, Celsius added 350 BTC as margin on the evening of March 12, with BitMEX confirming that it had seen the on-chain transfer, but the funds still needed block confirmation to be credited. Subsequently, the contract's mark price dropped to $4020 triggering liquidation, resulting in a loss of about 1326 BTC for the company. The additional margin only completed on-chain confirmation after the liquidation. Celsius argued that the exchange was aware that the supplementary collateral was about to arrive but still completed the liquidation under abnormal market conditions, failing to reasonably exercise its discretion in handling positions.

Hours later, the JST account suffered a loss of about 5034 BTC. The lawsuit states that BitMEX experienced about 24 minutes of service interruption in the early morning of March 13, during which JST could not supplement margin or reduce positions; after the platform resumed services, JST still could not operate, and its positions were liquidated at a mark price of $3422. Celsius submitted that the median cross-exchange spot price during the same period was about $5148, and based on this, questioned the severe deviation of the futures contracts from the external market.

Price disorder and service interruption: how it became breach of contract allegations

The futures in question used mark prices to assess floating profits and losses and margin levels. According to the lawsuit's description of the pricing rules, mark prices referenced external spot indices and were adjusted based on the basis reflecting the premium or discount relative to the spot; quotes on the BitMEX order book also affected this calculation.

Celsius accuses BitMEX of concentrating on the forced liquidation of taken-over long positions, lowering its own contract quotes while retaining outdated orders from before the service interruption once services resumed. According to the plaintiffs, while external spot prices had rebounded, the platform continued to execute liquidations on orders with insufficient bids and distorted quotes, further expanding the divergence between contracts and the spot index.

Section 1.12 of the service terms cited in the lawsuit stipulates that BitMEX has the responsibility to maintain an orderly market and also grants the platform discretion to suspend trading in cases of market disorder. Celsius claims that the platform should have taken measures such as suspending trading and handling outdated orders to prevent disorderly prices from continuing to trigger liquidations; the provision in Section 7.3 regarding reasonably maintaining the availability of services was used to hold accountable for the inability of customers to access their accounts during the period.

BitMEX's history states that the service interruption was attributed to a cyber attack. Then-CEO Arthur Hayes stated on March 16, 2020, that the trading engine was still running, but user requests were slowed or blocked, denying that the platform was intentionally down. The service terms also include disclaimers for technical failures, system overloads, and similar situations.

Who gets the settlement surplus after forced liquidation?

BitMEX's forced liquidation mechanism takes over customer positions before their margin is completely exhausted. The price corresponding to the complete exhaustion of the margin is referred to as the bankruptcy price; for long positions, if the subsequent closing price is higher than this level, the liquidation surplus goes to the insurance fund, while gaps arising below this level are prioritized to be covered by the fund. The fund is used to absorb underwater losses, reducing the risks for profitable traders who are forced to reduce their positions.

Celsius believes that BitMEX simultaneously controls the mechanism for triggering forced liquidations and the fund that receives liquidation surpluses, therefore having an economic motive to expand the scale of liquidations. The company demands the return of the BTC in question and also asks the defendants to return any profits derived from the relevant liquidations, including funds that can be attributed to these two trades in the insurance fund.

In a statement on March 22, 2020, BitMEX denied that the insurance fund was used to cover operational costs or profit the company. The platform disclosed that from March 12 to 13, the fund had increased by 4457 BTC due to profits from some positions being liquidated, reaching an intraday high of 37836 BTC, and then reduced by 2606 BTC due to realized losses.

The lawsuit also lists the information privileges of the proprietary trading department as part of the accusations of fraud and breach of contract. At that time, BitMEX promised that this department was separate from the trading platform and did not have access to orders, trades, or customer information beyond that of regular users. Celsius accused that the proprietary department was able to access customer positions and liquidation information and used this information to carry out trading.

After bankruptcy reorganization, Celsius continues to pursue trading losses

Celsius filed for bankruptcy in July 2022, and the reorganization plan retained the lawsuits against counterparties. The asset recovery and litigation management agency BRIC, appointed in January 2024, is responsible for advancing this case, and the recovered funds will be distributed to the corresponding creditors according to the reorganization arrangements. Entities related to JST transferred their claims in the case to Celsius in April 2025.

The two parties signed an agreement in March this year to suspend the calculation of applicable statutes of limitations, which expired on September 9, and Celsius filed a lawsuit three days later.

According to a BitMEX announcement, at noon on September 23, Beijing time, the exchange will stop trading services and close remaining positions, although users will still be able to log in to view their balances, trading records, and request withdrawals. As of the report by The Royal Gazette on September 16, BitMEX has not submitted an answer, and the relevant accusations are still pending trial.