The Celsius Network (CEL) halts customer withdrawals. The online wallet, which pays interest on bitcoin, ether, stablecoins and other tokens, is apparently facing bankruptcy. This radiates so strongly to the entire market that this week begins with double-digit losses.
A bear market is only real when there are bankruptcies and bankruptcies. The collapse of Terra (LUNA) was a good start, but it hasn't satiated the bears' hunger for blood and despair.
With Celsius, the next major bankruptcy is now looming. At least if you understand bankruptcy as meaning that a company is no longer able to service outstanding liabilities.
"Due to the extreme market circumstances, we are announcing today that Celsius is suspending all payouts, swaps and transfers between accounts," explains the platform. "We are doing this to put Celsius in a better position to meet payout obligations over the long term."
Celsius token CEL has taken a pretty sharp plunge, although not necessarily overnight.
The price history of the Celsius token in 2022 according to coinmarketcap.com
From the peak of just under 6 euros in the summer of last year, there is hardly anything left - only 19 cents. Few tokens have fallen so rapidly and consistently. The loss of confidence in Celsius has been building for months.
CeFi with more than $20 billion under control
Celius is a so-called "CeFi", a centralized finance, i.e. an almost normal financial service provider.
It is an online wallet where you can store cryptocurrencies and stablecoins. The special feature: You can earn interest on the coins, either by staking or by lending them. In this way you could passively earn 5-17 percent interest.
Such a program works very well in a bull market of rising prices. As a result, Celsius grew rapidly. In the summer of 2021, the platform managed more than $20 billion in 43 cryptocurrencies for almost a million users .
However, the business model becomes problematic when the markets collapse as they are currently doing. When everyone is making losses, it becomes difficult to collect interest. As a result, assets under Celsius' control were down to just $12 billion by May, while operations, at least formally, continued as before.
Turn in five days
Even the collapse of Terra was a challenge. When the coin, which is also available on Celsius, collapsed, rumors arose that the platform was giving its users the "HOLD mode" without being asked, which made payouts more difficult and delayed.
"Over the past few weeks, the entire crypto community has been going through a challenging time," the platform admitted five days ago . But HODL mode, she assured her users, is only there to "protect user accounts, comply with regulation, and meet legal requirements."
Celsius explained that a lot of misinformation has been spread about the company. "They try, for example, to link Celsius to the collapse of Luna and misleadingly claim that Celsius made significant losses as a result." This is incorrect. Celsius recognized the problem with UST and Luna early on and acted quickly to protect customers.
Today Celsius stopped paying out. What happened in the last five days? Was assuring customers on the blog just hot air that Celsius wanted to use to save what (no longer) could be saved? Was there a plan to create liquidity that has now failed? Or did another, external cause plunge Celsius into bankruptcy?
One can almost only speculate at this point. There is little concrete, public evidence as to what exactly happened.
sETH != ETH
Interaction with another token may have played a key role.
Celsius reportedly holds around one million ethers, of which just under a third is staked. This means they are frozen in a smart contract where they earn interest but won't become liquid again until ETH2 is fully active. When exactly that is, nobody really knows at the moment.
In order to allow users to still have the staked ether, some staking pools issue tokens that are covered by the staked ether and are intended to map the value to ether 1:1. In the case of Lido, the staking pool used by Celsius, this was sETH.
Lido manages about a third of the 12 million or so staked ethers. It is therefore not entirely unimportant that the approximately 4 million sETH tokens hold parity with Ether. This is usually ensured by a liquidity pool, as with the DeFi platform Curve.Fi. But those same pools have lost their balance over the past week. sETH lost parity, falling to around 0.94 Ether.
This was a problem for Celsius: the coins in which users could pay out their interest-bearing ether were suddenly worth less than the ether. They got less instead of more, and Celsius may have had trouble servicing withdrawal requests.
But to what extent that was actually relevant is difficult to say. Maybe it was the famous straw that broke the camel's back. A platform like Celsius is so intertwined with the entire ecosystem that it is rocked by every bump that the bear market inevitably rumbles over. Perhaps, after several large and small accidents, it has now simply reached the end of its reserves.
Tether: Always there somehow
But the interdependence can also be felt the other way around: when Celsius falls, others fall with it. You can't just cut out a $12 billion player in a hyper-connected ecosystem and hope it doesn't affect anyone.
As is so often the case, speculation is focused on Tether, the issuer of the notorious but still dominant USDT stablecoin. Tether is intertwined with Celsius in several ways: on the one hand, Tether has invested in the startup, on the other hand, it has lent it about a billion USDT.
This connection has previously prompted speculation that Celsius does not actually earn the interest it pays, but rather pays it with USDT that was created out of thin air, while Tether is happy to find a buyer for Tether and use the loans to spruce up its balance sheets. It's also too tempting: Tether creates USDT for nothing, and in return gets liabilities that become equity, giving them more coverage for more USDT, and so on.
After all, for Tether, the alleged insolvency of Celsius is important enough to issue a press release . The events are "an unfortunate result of market volatility and extreme market conditions." Tether's investment portfolio also includes an investment in the company, but this is a very small proportion of equity and there is "no correlation between this investment and our own reserves “. The loans to Celsius were also overcollateralized and therefore have no impact on the reserves.
At this point there is little reason to doubt it. Tether is just too big for Celsius to drag without other factors. A whale may be able to tear down a dinghy; a carp cannot.
Nexo: Will tip next - or become the market leader
Providers of comparable products are also affected. They face the same unfavorable market circumstances, and with the collapse of Celsius, they also risk losing customer confidence.
The largest provider after Celsius is Nexo , a startup that was founded in the Baltic States but is registered in Switzerland for regulatory reasons. Like Celsius, Nexo allows you to deposit, exchange and earn interest on cryptocurrencies and stablecoins or fiat currencies.
On the whole, however, Nexo seems to be a bit more conservative than Celsius. There are a little fewer coins, Nexo takes more care of bank deposits, for example in euros, and has also insured part of the deposits . The company is, it explains on Twitter , "in a strong liquidity and equity position," which a real-time audit confirms: the nearly $6.2 billion that customers have deposited with Nexo are more than 100 percent covered.
In fact, Nexo claims it is doing so well that it is offering to buy some of Celsius' assets, such as collateralized loans and the assets that back them, as well as the brand and customer database. This could help create liquidity for Celsius customers again.
However, this doesn't really seem to be able to stop the panic that is also spilling over onto Nexo. There have already been reports of withdrawals being delayed on Nexo, possibly due to an increased need by users to remove their assets from such platforms.
The Nexo token (NEXO) is also already down around 25 percent today, losing between 60 and 75 percent over the course of the year. While those losses are still fairly modest compared to CEL, like Celsius, Nexo's business model should be under a lot of pressure from the ongoing bear market.
Price history of the Nexo token in 2022 according to coinmarketcap.com. Not exactly good - but far from the tragedy of the CEL token.
However, if Nexo survives the coming months, it could benefit from Celsius' collapse to become the market leader in its space.
Bitcoin and Ether fall too
Overall, the Celsius collapse is spreading across the entire ecosystem. Bitcoin price is down more than 12 percent in the last 24 hours, while Ethereum is down more than 16 percent. This third wave of sell-off since April has pushed Bitcoin to around $25,000 and Ethereum to less than $1,200.
The Bitcoin price is thus as low as it was at the end of 2020 and only around 4,000 euros above the all-time high of the last bubble at the end of 2017; Ethereum price, while roughly where it was in early 2021, is already a tad below the peak of the late 2017 bubble; and the number of unicorns, cryptocurrencies with a market cap of more than $1 billion, falls to 41, the most since February 2021.
These are all some signs that the market is about to normalize. Prices have collapsed and there have been chain effects, with one collapse becoming the cause of the next. When the chain of infection is over, the market could calm down from here. But maybe the big end is yet to come.
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