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The immediate impact of a ruling in favour of Celsius would be to allow the company to sell $18m in stablecoins to fund the expenses for a longer stay in chapter 11. But the firm’s request to sell those stablecoins turns on a more fundamental legal question: What rights do crypto banks, brokerages or exchanges have over their customers’ coins?

Ownership rights are spelt out in each firm’s terms of use that customers signed on to, often on their mobile devices with just a few clicks. Bankruptcy courts have only begun to unravel what those terms of use mean for the billions of dollars in cryptocurrencies trapped on insolvent platforms like Celsius, Voyager Digital Holdings and, more recently, FTX.

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“Any decision will be based on the facts in Celsius and will set forth the reasoning which can then be applied to the particular facts in FTX or another case to provide some precedential or persuasive clarity on an issue that is at present unsettled,” said Eric Wise of Alston & Bird, a lawyer representing a number of customers of FTX.

The Wall Street Journal has reported that before filing for Chapter 11 FTX had sent billions of dollars of customer assets to its affiliated trading firm Alameda Research, and that senior FTX officials were aware of it. FTX’s co-founder, Sam Bankman-Fried, has denied knowingly commingling customer funds, or knowing the scale of Alameda’s trading bets.

Lawyers for Celsius have argued in court papers that its terms of use explicitly gave the firm ownership rights over customers’ crypto in high-interest Earn accounts, allowing it to lend, sell, pledge and use for various investment purposes.

The terms of use specify that if Celsius went bankrupt, coins in the Earn accounts might not be recoverable, according to the firm’s court papers.

Lawyers for the committee representing all Celsius customers have largely supported the firm’s argument that customers signed over title to their crypto assets, while warning that it needs a sound business justification for any such sale.

Celsius’s terms of use were updated many times, and when customers failed to sign off on the changes, they were able to keep accounts on the platform. After one change in 2021, the company sent warnings that customers would lose rewards if they did not accept new terms. The customer committee noted in its court filings that Celsius has been unable to show that some 44% of account holders clicked through to accept its most recent terms.

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Several state regulators and individual customers have weighed in against the firm’s position and its plan to sell deposited crypto to fund the chapter 11 case, court filings show. The judge’s decision could influence how much financial flexibility crypto firms have in chapter 11 to use customer assets to forge a restructuring plan.

Some state regulators have said that language in the firm’s contracts was ambiguous and that it should not be selling customers’ coins until it has a plan to exit bankruptcy.

A number of states have questioned whether Celsius can exit bankruptcy with a crypto business intact at all, and whether it makes more sense for the firm to “focus on an expeditious and efficient shutdown” instead.

Write to Soma Biswas at soma.biswas@wsj.com

This article was published by The Wall Street Journal, part of Dow Jones