Celsius’ native CEL token is experiencing volatility far in excess of its weakened fundamentals. Buyers beware.
Rewind to mid-July. Celsius, one of the largest crypto platforms in the world, filed for Chapter 11 bankruptcy protection, as CEO Alex Mashinsky admitted it had made ‘what in hindsight, proved to be certain poor asset deployment decisions.’
These included loaning out 35,000 Ethereum to a company who then lost them, borrowing against valuable collateral with EquitiesFirst that was then sold on without approval, and losing $125 million from its investment in the Grayscale Bitcoin Trust.
Concerningly, according to the Financial Times, many of these decisions were at the behest of its beleaguered CEO.
Worth $3 billion in December 2021, the cryptopocalyse of 2022 has seen Celsius collapse in value. In its bankruptcy protection filing, the platform had just $4.3 billion in assets set against $5.5 billion of liabilities. And worryingly, it owed $4.7 billion to its 1.7 million users.
But apparently, the situation has worsened since. Some sources claim Celsius could run out of liquidity by October.
Further, a Tuesday filing submitted to the US Bankruptcy Court for the Southern District of New York shows Celsius holds $2.8 billion less in crypto than it owes to depositors, and has a $1.2 billion gaping hole in its balance sheet.
Despite the rescue plan currently underway, this makes the recent positive price movement of its native token CEL, completely bizarre.
CEL Token price movement
CEL set its record high on 3 June 2021 at $8.01 per token, a dizzying rally from $0.10 just a year earlier. But imitating Icarus, CEL fell to just $0.19 by mid-June 2022.
However, it then recovered sharply to $3.86 last week. And despite falling to $2.74 today, its $40 million market cap remains, in apparent defiance of the near-collapse of CEL’s parent company.
There are a few possible explanations for what’s going on.
CEL price movement: 3 explanations
- Short squeeze
Short squeezes occur when highly leveraged traders who have shorted a security are forced to buy back at a higher price than they shorted it for, either because they have been margin called, or in order to avoid greater losses.
This would explain CEL’s skyrocketing momentum despite the weak fundamentals.
Vice President of Metalpha Dean Peng thinks this is the most likely answer, saying ‘the contract price for late September settlement is at $2.60, which is more than 20% lower than the spot price earlier this week.’
‘At the same time, the price of the perpetual contract is also lower than the spot price, and the negative rate has remained for some time. It seems the market is retaining its negative judgment on Celsius’ fundamentals.’
Pawel Laskarzewski, co-CEO of blockchain bridge platform Synapse Network, concurs that ‘the biggest factor that influenced the price in the last weeks was a short squeeze. Traders on FTX alone closed some 300,000 short positions in just two days between Aug 11 and 13.’
‘Usually, short squeezes cause big corrections as they are not organic trades but panic ones – and we can see one right now – from $4.60 to $3.10.’
Reminiscent of the GameStop saga of January 2021, and the current BBBY craze, social media users on Reddit and Twitter have sent #CELShortSqueeze trending, with a target price of at least $100.
Asset Manager Samir Kerbage posits that ‘since the circulating supply is very small, it is technically possible to create a short squeeze, although the impact in the overall market could be very limited.’
2. Celsius buyout or restructuing
A second possibility is that CEL buyers believe Celsius will be bought out by a larger institutional investor. Blockchain network Ripple has declared an interest in Celsius’ assets, as has banking giant Goldman Sachs. Despite the many problems, rumours abound that the bank is proposing a $2 billion offer.
As Laskarzewski notes ‘this led to huge speculation on the token and the token price increase as this built some confidence that the company will eventually survive.’
Further, Celsius’ Unsecured creditor Committee, made up primarily of customers, the US Trustee, and a number of other key parties, met yesterday with a second meeting scheduled for 1 September.
Until Celsius formally declares bankruptcy, CEL remains a viable, though highly risky, investment choice.
Lucky investors could well benefit from a last second save, especially if institutions are waiting for Celsius to accept a sub-optimal offer out of desperation to survive.
3. Rug Pull
The less pleasant possibility is that Celsius is about to perform a Rug Pull, aided unwittingly by retail investors trying to ride the squeeze.
Arkham Intelligence data shows multiple wallets owned by Mashinsky have sold $44 million of CEL tokens over the past few years, and have continued to sell as recently as last week.
Of course, some investors make a financial killing during crypto short squeezes. But remember, far more make heavy losses.
Take a position, but be prepared to get your fingers burnt.
This article has been prepared for information purposes only by Charles Archer, as part of a freelance partnership with Spotcoin. It does not constitute investment advice, and no party accepts any liability for either accuracy or for financial decisions made using the information provided.
Any investments are made at the reader’s own risk. Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.