The Vermont Department of Financial Regulation warned state investors that it believed beleaguered cryptocurrency exchange Celsius is "deeply insolvent" in a recent consumer alert notice. The notice warned investors of the high risks of investing with Celsius and announced that it had entered a multi-state effort to probe the company's activities.

"The Department believes Celsius has been engaged in an unregistered securities offering by offering cryptocurrency interest accounts to retail investors," the VDFR wrote in a release. "Celsius also lacks a money transmitter license. This means that until recently, Celsius was operating largely without regulatory oversight."

The notice, issued on Tuesday, also mentioned that the VDFR "is aware of reports that Celsius has consulted with insolvency counsel and is considering a bankruptcy filing." The very next day, Celsius filed for chapter 11 bankruptcy.

According to the company's Business Wire release, the firm will settle outstanding issues with customer deposits as part of the bankruptcy process. Prior to the declaration, Celsius has used a variety of assets to selectively repay a number of creditors but has not taken any concrete steps to address customer deposits since it froze withdrawals last month.

Now that Celsius is heading into chapter 11, the company and investors are entering into relatively unknown territory. As the Vermont DFR points out in a consumer alert released in response to Celsius' filings, there have been very few cryptocurrency bankruptcy cases in the U.S., leaving the fate of investors' frozen deposits and their options for recourse largely uncertain.

"Investors in Celsius may wish to consult with their own counsel about how the bankruptcy proceeding will affect their rights and the value of their investment in Celsius," the agency advised.

While Celsius has said that it intends to continue operating in the meantime while its bankruptcy proceedings unfold, the company still faces a deepening crypto winter and a market all but consumed by volatility.

Vauld, a major Singaporean cryptocurrency lender backed by Peter Thiel, suspended withdrawals this month. The founders of Three Arrows Capital, a cryptocurrency hedge fund, have vanished after facing court-ordered liquidation.