Celsius’ troubles a market opportunity for traders

Celsius’ troubles a market opportunity for traders

Celsius’ troubles a market opportunity for traders

Whilst the recent Celsius debacle is a major issue for the company, its clients and for the market generally, some are attempting to capitalize on its difficulties.

There are two main groups that are in a position to financially benefit from Celsius’ downfall.


The stETH opportunists

One part of the unfolding Celsius drama relates to a position the company holds in Lido Finance’s staked Ether (stETH). stETH is a derivative backed 1:1 by ETH. Celsius owns an outsized position of the derivative on Aave, to the value of $702 million.

In the aftermath of last month’s UST collapse, traders have been moving out of digital assets that are less liquid and difficult to buy and sell. As a consequence, liquidity in stETH has dried up and it has lost its peg against ETH. At the time of writing, it has a market value of 0.9445 ETH. The result is that Celsius doesn’t have the ability to exit its stETH position without realizing a loss. If it’s forced to sell right now, that price will be driven down much further.

And it’s here that some opportunists in the market are looking to pounce. Everyone knows that it's looking increasingly likely that Celsius will be forced into selling. In a forced sale scenario, the current 5.5% discount on stETH could increase substantially. These traders could avail of that opportunity and realize the benefits once the market normalizes and it is once again pegged with ETH. To compound matters further, it’s understood that crypto hedge fund Three Arrows Capital (3AC) are in a similar bind, trying to exit a large stETH position.


The liquidation hunters

Celsius has an outstanding collateralized DAI loan to the value of $250 million, meaning that the company either has solvency issues or at the very least, shorter term liquidity issues seeing as it has suspended client withdrawals. For the holders of that debt, they stand to benefit if the company can’t keep the loan within its collateralization limits. In that instance, the loan would be liquidated with the collateral going to the loan provider. That collateral is substantial, standing at 23,962 Bitcoin (current valuation of $538 million).

Naturally, this loan getting liquidated would be a disaster for Celsius and its clients. Whatever its status is right now, with the loan liquidated the chances of it being a solvent company are slim. However, such an eventuality also has major repercussions for the crypto market generally. The Bitcoin spot price has already been under major downward pressure as a result of a crypto bear market and very unfavorable macro-economic conditions. If a mass liquidation were to occur, over $500 million worth of Bitcoin could potentially hit the market. With crypto sentiment set firmly to ‘extreme fear’ recently, a flash sale of Bitcoin could really accelerate the panic and drive the spot price much, much lower.

As Bitcoin drops in value, the spot price at which liquidation gets triggered gets closer. To stave off this eventuality, the company has been adding collateral to the loan over the course of the past 48 hours. At the time of reporting on Celsius’ difficulties yesterday, the liquidation price stood at $18,387.88. At the time of writing, it now stands at $15,151.88.  With the Bitcoin spot price currently trading at $22,600, that leaves the loan in a safe position. However, in the current market environment, there can be no room for complacency.

There are added concerns in relation to MicroStrategy, which has a $205 million Bitcoin-backed loan from Silvergate Bank. MicroStrategy CEO Michael Saylor stated last month that it would have to add collateral if the Bitcoin spot price went below $21,000. It seems that the position is well managed but these things aren’t an issue until suddenly, they are.

In the latest developments, Celsius have hired restructuring attorneys from a Washington D.C law firm to help advise on possible solutions.

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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