Celsius Network CRASH… What happened to Celsius Network? How to Invest safely in Crypto Bear Market — 2022?
Celsius Network, the so called “People’s home for Crypto” stopped their users from getting out of their “homes”. They halted withdrawals in sight of the recent market dump. There are tons of FUD around Celsius and this article will have all the things you need to know on the bank run situation they are having right now. And the funding rate for short position in CEL in FTX had risen to all time highs.
· Reasons for Celsius Bank run
∘ 1. Lost Funds in DeFi Hacks & Liquidity issues with stETH
∘ 2. Excessive Leveraging and massive liquidations
∘ 3. Competitors Spreading FUD
∘ 4. Alameda Research’s Revenge· Early Signals — What you should have known before using Celsius
∘ 1. Net Outflows
∘ 2. Borrowing to pay withdrawals
∘ 3. CEO Alex Mashinsky and his wife dumping $CEL
∘ 4. Terms and Conditions· Impact on the Crypto Market
∘ Bitcoin
∘ Ethereum
∘ Other L1 tokens· How to invest in Crypto Safely in 2022
Reasons for Celsius Bank run
1. Lost Funds in DeFi Hacks & Liquidity issues with stETH
Celsius has lost colossal amount of money in DeFi hacks. Below are the list of projects involved:
- Losing UST on Anchor in LUNA UST incident
- Lost $70m in Stakehound
- Lost $50m in Badgerdao hack
First the Luna UST depeg crash, Celsius was found to be involved in the UST depeg, along with 6 other whale wallets, according to Nansen’s analysis. Despite the fact that Celsius denied a huge loss in the LUNA UST incident, on chain data shows otherwise.
Second is multiple hacking incidents in projects that Celsius invested in using their depositors’ funds, including stETH. While stETH price is massively sold by whales given the current market situation, the liquidity for selling stETH is very low. Celsius hold around 70% of their ETH deposits as stETH, causing Celsius to become illiquid when stETH have 45% slippage [insert otterooo source curve photo]. In Badgerdao hack, Celsius lost an additional $50m, things just gets worse for Celsius.
2. Excessive Leveraging and massive liquidations
Go check out Celsius’ Crypto holdings here.
Bitcoin:
Celsius is one of the largest Bitcoin Institutional holder on Earth, surpassing Microstrategy and Tesla, with 150,000 BTC on hand in April 2022. However, they are taking excessive leveraging in their positions, getting loans from both Maker and Tether. They also participate in non-disclosed DeFi activities and possibly farming to provide high APY. Celsius is taking debt with depositors’ crypto as collateral to provide interest on Crypto. Celsius had a
$278M DAI loan (17,919 BTC as collateral) with liquidation price of $22,500 on Jun 13, they have been slowly adding collateral to their loan position to prevent liquidation. By adding 7,200 BTC to its position, they successfully push down the liquidation price to $14,000 on Jun 16. On the other hand, Celsius is transferring wBTC and ETH to exchanges to cash out and payback their depositors or loans, which might cause these 2 coins to tank in price.
Ethereum:
Celsius is also active on ETH. They first lost 35,000 ETH on chain in the Stakehound incident, then got stuck in the stETH illiquid situation now. They have around 73% of ETH in stETH which is illiquid until The Merge when users can withdraw their staked ETH. stETH is now so illiquid that you literally cannot exchange it for ETH at a reasonable price on chain, so most probably Celsius will need to try their luck on OTC market.
According to parsec finance, nearly $500m worth of ETH will face liquidation at $1150 if no extra collateral is added.
With the Crypto Market going down so quick, millions of dollars worth of coins are being liquidated which amplified the dump. Panic sellers and lenders withdrew their coins and joined the dump along with the FUD spread on twitter. Ultimately causing the Bankrun situation.
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3. Competitors Spreading FUD
In the past few months, multiple accounts have been spreading negativity on Twitter, including CEO of Swan Bitcoin. Starting from there, Celsius withdrawals had increased significantly.
4. Alameda Research’s Revenge
In the recent LUNA UST incident, news of Alameda Research, Jump, Jane Street and Celsius went out on May 10th indicating that they will be helping Luna Foundation Guard to raise an additional $1B to hold UST at its peg. Right on the next day, Alex Mashinsky posted on Twitter stating that Celsius “ was not involved in any LUNA bailout”. On chain data shows that Celsius is selling their UST, front running the “big boys” like Alameda Research. These institutions (Alameda, FTX, 3 Arrows Capital, Galaxy Digital, Jump Capital) were stuck holding UST and locked LUNA, losing hundreds of millions of dollars each.
Alameda Research dumped stETH hard after noticing that Celsius is stuck holding a large bag of stETH, causing stETH to be illiquid
Twitter posts also directed the stETH dump to Alameda Research, these are the things that Alameda did:
- Dumping large amount of stETH
- invested $75m into Voyager (competitor of Celsius)
- Sponsoring large social media accounts
Early Signals — What you should have known before using Celsius
1. Net Outflows
You can see that there is continuous outflows happening in Celsius in the past months, which kind of signals the possibility of bank run.
2. Borrowing to pay withdrawals
There are at least $76.7m USDC and $18.3m USDT loans used to pay withdrawals, which accounts for 29% of total sent out from known Celsius wallets.
3. CEO Alex Mashinsky and his wife dumping $CEL
On chain data shows wallets related to Alex Mashinsky dumping CEL tokens before the account freeze, shady?
4. Terms and Conditions
“not your keys, not your coins”, this is true for any projects you see in the CeFi space. Celsius clearly stated in the terms and conditions that your Celsius account belongs to Celsius, and the crypto in them are theirs to use. Let’s hope everyone finally get this idea after this incident.
Impact on the Crypto Market
Bitcoin
Given Celsius is one of the largest Bitcoin holders on this planet, Bitcoin price will most likely tank and go back to “attractive levels” if Celsius becomes insolvent. If all their positions are liquidated to pay lenders or depositors in cash, this will result in a 150,000 BTC ($5m) dump. While Bitcoin ADV (average daily volume) currently sits at around 40,000–50,000 BTC, it would be a huge volume compared to the daily volume. This will most likely to cause many loan positions to be liquidated and exacerbating the dump.
Ethereum
Similar to BTC, ETH faces the same risk of Celsius dumping to cash out. Along with problems in illiquid stETH, Celsius will most likely sell their stETH at a discount on OTC market, having less impact to the market. While Celsius do have a significant holding in ETH, a price drop is anticipated.
cETH is one the largest holdings amongst ETH whales according to On-chain data, while this poses another threat to massive liquidations of ETH if price drop by a significant amount due to Celsius dump. FYI, cETH is the receipt token you get from borrowing the ETH on compound.
Other L1 tokens
Apart from BTC and ETH, Celsius also hold a bunch of other L1 and L2 coins including LINK, MATIC, AVAX, BAT, PAXG, MANA, AAVE…. etc
Which will lead to different size of impact in the altcoin space depending on the methods and size of selling from Celsius.
How to invest in Crypto Safely in 2022
The Celsius FUD have scared investors in the past weeks, along with the nerve wracking FED meeting on June 15th, the overall market had been down for 11 weeks.
I would see this as a great opportunity to buy coins which you think will still be around in the next bull market. In my opinion, mostly BTC and ETH. You should still be staying mostly on cash, slowly adding to Blue Chips. I would recommend staying away from Altcoins with large volatility or allocate a small proportion to it. Make sure the amount you invested is what you will be comfortable losing and sleeping with.
In these types of volatile market, DO NOT use leverage and DO NOT do revenge trades. These things are what get you absolutely REKT in a bear market condition
As always, stay safe and DCA!
Go check out my other post on BTC price predictions and chart analytics : https://medium.com/@tvstsang/best-bitcoin-fundamental-technical-analysis-in-2022-bear-and-bull-case-for-cryptocurrency-c72cdfbecddc
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