Rather than Celsius, this is the main cause for the plunge in Bitcoin's price
By Noemi Jansana / Alejandra Zamora
Date: Tuesday 14 Jun 2022
(Sharecast News) - From 'Bolsamanía' we already warned people that after Bitcoin lost $30,000 in May, and due to the crisis of confidence unleashed by the collapse of Terra and its tokens, LUNA and UST, that Bitcoin and the market in general were exposed to further falls. Well, the case of cryptocurrency trading and lending platform Celsius Network, which has decided to suspend all withdrawals, exchanges and transfers between accounts as a result of "extreme conditions" in the market, has dealt another severe blow to the price and investor sentiment. However, the main driver of the sell-off is another.
How did all this happen, Marcus Sotiriou, analyst at GlobalBlock, questioned. "Many think it is mainly due to fear surrounding the risk of insolvency of one of the largest lending platforms Celsius, after it has been widely speculated that they have been irresponsible with client funds," he commented. The platform announced on Monday that they "paused all withdrawals, redemptions and transfers between accounts." Their operations will continue and they will continue to inform the community. Celsius has taken this action to stabilize liquidity and to preserve and protect assets." The fear in the market is that other platforms will adopt this practice, as Binance did.
They were heavily exposed to UST (Terra dollar) with about $500 million of customer funds, and also lost about $50 million, when the DeFi Badger DAO protocol exploded. At the time, Celsius declined to comment on the percentage of customer funds held in the DeFi protocols. "The biggest problem Celsius currently has appears to be its $1.5 billion position in stETH - 1 stETH is a claim to 1 ETH locked on the Beacon blockchain. At the moment, stETH is trading at a discount of more than 5% to ETH, raising fears that if customers try to redeem their positions, Celsius will run out of liquid funds to pay them back," the analyst explained. "They are taking massive loans against their illiquid positions to pay their clients' redemptions, but they could run out of funds in 5 weeks," he added.
Despite the fear, uncertainty and doubt caused by the Celsius debacle, the sell-off began early in the weekend on Friday after U.S. inflation data was released. CPI came in at 8.6% year-over-year in May, up 0.3% from April, showing that inflation is rising rather than slowing. "I think this is the biggest contributor to the drop we have seen, as it results in a more aggressive US Federal Reserve - they are now forced to remove more liquidity from the market in order to reduce inflation. When liquidity is removed, risk assets are hit the hardest, which includes cryptocurrencies," commented Sotiriou.
"It is important to remember that this period of persistent inflation should pass, and the cryptocurrency industry will become more efficient, as insecure and incompetent companies are gradually weeded out," the expert concluded.
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