Cryptocurrency and Click-wrap Agreements

With the recent volatility of cryptocurrencies causing some of the major digital currency platforms and exchanges to file for bankruptcy, a recent decision out of the Southern District of New York provides insight into how cryptocurrency held in certain types of accounts may be treated in bankruptcy proceedings.  At issue in In re: Celsius Network LLC[1] was whether Celsius, the debtor, or account holders using its platform, owned the assets in accounts administered by Celsius as part of its Earn program.  Under the program, account holders deposited cryptocurrency assets in accounts with Celsius and “earned” interest and fees on those deposits based on their use by Celsius for various activities.  Notwithstanding language in the governing Terms of Use agreement referring to the deposits as “loans”, the court held that the cryptocurrency assets in the Earn accounts were owned by Celsius rather than the account holders. 

The court justified its decision by the lack of ambiguity and resulting enforceability of Celsius’ click-wrap agreement with account holders. The enforceability of click-wrap and other electronic agreements turns on the issue of mutual assent.  In a digital realm, this mutual assent has two components: (1) action manifesting a counterparty’s consent and (2) whether the consenting counterparty would understand the terms will apply to them.  On the first element of actual consent, for click-wrap agreements, this action is established by the action of clicking on “I agree” (or equivalent language) with respect to the contract terms. And on the second element of the analysis, the focus is on whether the terms are “reasonably conspicuous” to the assenter.  For example, if the agreement is presented as a contract and the only item on the page without clutter (i.e. on a separate page or pop-up box), this element is more likely to be established. 

In the Celsius decision, the court found both of these elements present,.  The terms of the click-wrap agreement provided that, upon depositing their cryptocurrency assets into the Earn accounts, account holders granted all right, title, and interest in those assets to Celsius.  Further, the click-wrap agreement specifically provided that if Celsius entered bankruptcy that the crypto assets would be used as collateral and the account holders may not have any legal remedies or rights other than as an unsecured creditor.  Because the language of the click-wrap agreement was unambiguous and clear, the Court held the agreement is enforceable, despite the fact that some or all of the account holders did not actually read all or any of the terms.  As a result, Celsius was held to own both the deposits and the accrued interest in Earn accounts on its platform, and could continue using or liquidating those assets during its bankruptcy as it tries to reorganize.

[1] In re Celsius Network LLC, No. 22-10964 (MG), 2023 WL 34106 (Bankr. S.D.N.Y. Jan. 4, 2023)