Looming Celsius liquidation could lead to a crypto contagion event

Tue 14 Jun 22, 3:05pm (AEDT)
Crypto 4 - Stacked cryptocurrency coins (Bitcoin, Ethereum, Litecoins)
Source: iStock

Key Points

  • Crypto lending platform Celsius is at risk of a massive +US$500m Bitcoin liquidation
  • Celsius paused all client withdrawals and trading activity on Monday
  • Bitcoin is down around -25% in the last four trading sessions to US$22,000

Cryptocurrency platform Celsius has been making headlines after pausing all client withdrawals and trading activity on Monday.

Celsius claimed that the pause was due to "extreme market conditions" and necessary to "stabilise liquidity and operations".

Celsius is one of the largest crypto lending platforms in the world, at one point, claiming to have more than US$20bn in assets.

Funnily enough, Celsius CEO Alex Mashinsky said to a user on Twitter, "do you know even one person who has a problem withdrawing from Celsius" the day before the collapse.

The situation gets even more fishy, with Celsius reportedly transferring US$320m worth of crypto assets to another platform called FTX, right before announcing the trading and withdrawal halt.

The news sparked broad-based panic across cryptocurrency markets, with Bitcoin down -15.4% from US$26,500 to US$22,500 on Monday.

Bitcoin continues to sell off, down another -2.6% to US$21,850 on Tuesday afternoon.

BTCUSD 2022-06-14 13-25-20

Why Bitcoin could blow up

The Celsius network is at risk of a massive liquidation if Bitcoin prices fall below US$16,852.

According to senior analyst Dylan LeChair from UTXO Management, Celsius has been aggressively collateralising Bitcoin (likely to boost platform liquidity). At the time of writing, Celsius has 23,900 Bitcoin in their vault, worth around US$540m.

The massive debt position will face liquidation if the price of Bitcoin hits US$16,852.

Source: Dylan LeClair

Separately, high-profile cryptocurrency trading platforms OKX and Binance have been reportedly liquidating client accounts amid the recent selloff. Another factor further exacerbating the weakness in crypto prices and potentially pushing Bitcoin closer to Celsius' liquidation price.

Over US$500m of positions, mostly in Bitcoin, has been liquidated in the past 24 hours, according to Beingcrypto.

All eyes on US$16,852

If Bitcoin falls another -20% to the US$16,852 liquidation price, Celsius will be forced to dump its position - the largest personal debt position on the MakerDAO protocol (in lay mans terms: a crypto bank).

Note: if Celsius adds more Bitcoin to its vault, its liquidation price will likely be pushed lower

Dumping such a large position would push Bitcoin prices lower, forcing more liquidations for both traders and trading platforms and spark contagion across other cryptocurrency assets.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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