Image credit to Market Watch Article

CEL, the native token of the Crypto lending platform Celsius Network, rose from $0.67 on June 19th to $1.59 on June 21st, a 180% spike compared to a 12.37% of the general crypto market.

Bear markets can be brutal, more so in the cryptocurrency market. Unlike the traditional stock or forex markets, some crypto assets tend to fall as much as 90%, while other large-cap cryptocurrencies like Bitcoin fall as much as 50%. 

This is particularly risky when it comes to crypto lending. Most crypto lending platforms use cryptocurrencies as their collateral for any loan issued to their users. If the crypto market crashes, the borrowers would be at the risk of being liquidated, and the lending platform could also end up in debt. Well, this is what happened to the popular crypto lending platform — Celsius. 

Crypto lending platform Celsius

Celsius lending platform suspends withdrawals. 

On June 13th, Celsius announced through a Medium blog post that they would pause all withdrawals, swaps and transfers between accounts. The team further explained that this decision was to put Celsius in a better position to honour, over time, its withdrawal obligations.  

This ban came after leading cryptocurrencies Bitcoin and Ethereum plummeted 14% and 25% over the same week, and $167 billion evaporated from the crypto industry. Furthermore, Celsius’s coin, CEL, dropped 20% in value the same week and a further 67% that weekend to about $0.20. According to The Financial Times, the value of assets deposited on Celsius dropped 50% between December and May, plummeting to $12 billion from $24 billion. 

Experts and analysts also linked the ban to liquidation problems from Terra Luna’s collapse, which resulted in over a $60 billion loss. However, Celsius founder Alex Mashinsky dismissed the claim through a Tweet stating that Celsius had minimal exposure to Luna and UST.  Although Mashinsky denied any liquidation problems, experts believe this was the case. 

Last November, the group chief’s Financial Officer Yaron Shalem, was also arrested in a connection to crypto fraud. Celsius replaced Shalem in February 2022, but this did not seem to be the last of their detrimental encounters. In April, Celsius also restricted investment in its high-interest Earn product to institutional investors following what they termed as discussions with securities regulators.  

Crypto lending platform Celsius attempts a comeback after CEL rises 300% in one week.

The surge came after PlanC, an independent market analyst, put up a $20 million bounty for anyone who could prove that the Celsius network suffered a coordinated attack at the hands of a third party.

 The announcement led to a crypto frenzy in the crypto community, and the hashtag #CelsiusShotsqueeze became a trending topic on Twitter. Moreover, the search term “CEL short squeeze” also scored a perfect 100 on Google search between June 12th and June 18th. As a result of this trend, day traders purchased CEL tokens in the masses, pushing their prices up to counter those who had short CEL prices. The so-called “Short Squeeze” was successful, and CEL price rallied further. 

Image credit to DoopieCash Twitter handle

Is Celsius out of the woods?

Celsius uses capital deposited on its platform to further its investments and lend out loans to borrowers. In exchange, Celsius offers its users up to 30% interest paid out weekly. Last year, Celsius held over $20 billion worth of digital assets under its management. However, as of May 2022, after the market crash, it now holds $12 billion worth of assets, almost half of what it held at the beginning of the year. 

Furthermore, CEL is currently trading at $0.95, 88% down from its all-time high of $8.02 on June 4th 2020. As a result of all these factors and its inability to pay the excessively high yields (as much as 18%) it promised its clients, Celsius still runs the risk of becoming insolvent. Moreover, the platform has attracted a lot of attention from regulators meaning the Celsius team will have to over-deliver on their promises in order to impress the regulators.

Celsius hires advisers ahead of potential bankruptcy.

According to a report from The Wall Street Journal on June 24th 2022, Celsius had allegedly hired an unknown number of restructuring consultants from the firm Alvarez & Marsal to help advise the team on potentially filing for bankruptcy.

This report followed another report published on June 14th, which stated that the Celsius team had onboarded lawyers in an attempt to restructure the company amid its financial issues. Moreover, in an attempt to rescue the platform, Celsius investor and BnkToTheFuture co-founder Simon Dixon proposed “financial innovation” as a solution.

This would see the platform focus more on an innovative fintech solution that would bring more revenue, similar to the approach Bitfinex took in 2016. Despite all the attempts to resolve its issue, it’s still not certain whether Celsius will be able to weather this storm.