Altcoins Brace for Impact as Celsius Preps for Major Liquidation
Celsius Network (CEL), a now-defunct cryptocurrency lender, recently got a green light to liquidate its altcoin holdings for crypto majors, Bitcoin (BTC) and Ethereum (ETH), as part of its restructuring plan. According to blockchain analytical firm Kaiko, this can exert more pressure on the crypto market.
In its report from earlier this week, Kaiko noted that Celsius held more than $2 billion collectively in BTC, ETH, stETH, and a mixed bag of liquid and illiquid altcoins, including $240 million of its own native CEL token, as of March-end. Some of these holdings have already been moved by the company to stablecoin issuer Paxos and market maker Wintermute.
Ever since Celsius filed for bankruptcy about a year ago, most of the company’s altcoins have been losing value as the broad cryptocurrency space experienced a bear market.
Kaiko noted in its report that while there has been a recent surge in the value of Bitcoin Cash (BCH) and Litecoin (LTC) bolstered by the launch of the Citadel, Charles Shwab, and Fidelity-backed institutional exchange EDX, most of their holdings are still down between 6% and 84% over the past year.
According to the crypto asset data provider’s latest report, “the market impact could be significant.”
With the price of the broad crypto market on a downtrend over this past year, liquidity of the tokens held by Celsius has also tanked though there are no details as to the buying and selling rates or the execution venues yet.
“The aggregated market depth for Celsius’ altcoin holdings has declined by 40% since 2022, totaling around $90mn in early July,” stated Kaiko.
But the court documents show that Celsius holdings are far greater than $90 million in altcoins, making it difficult for the company to liquidate without incurring high price slippage. Moreover, the majority (over 60%) of this altcoin market depth is concentrated on off-shore exchanges like Binance, with only 30% on US-based trading platforms.
And when it comes to Celsius’ native token, CEL, which accounts for more than 65% of its altcoin holdings, the digital asset has plunged by 83% year-over-year. With there being virtually no liquidity for CEL as its market depth collapsed to just $30k, which is also concentrated mostly on Bybit and OKX, the biggest question mark when it comes to liquidation is regarding the CEL token.
As of writing, CEL is a $68.6 million market cap coin trading at $0.1579 while managing $731,431 in 24-hour trading volume, as per CoinGecko. While the price of the CEL token is up 40.7% in the past two weeks, 31.6% in the past 30 days, and 62.27% year-to-date (YTD), the coin is down 98% from its all-time high (ATH) of $8.05 hit in June 2021.
“Ultimately, due to poor liquidity conditions, Celsius altcoin liquidations could put pressure on crypto markets in the short term,” noted Kaiko.
Altcoins to be Affected
Celsius Network was one of the first companies to fail last year when Terra (LUNA) and TerraUSD (UST) devalued, and Terraform Labs collapsed. Besides Celsius, several crypto companies filed for Chapter 11 bankruptcy in recent months, including crypto lender BlockFi, Genesis Global Trading, FTX, Three Arrows Capital, and Voyager.
Now, the bankrupt crypto lending company has started the procedure of converting its assets into BTC and ETH as crypto data provider Nansen noted that it has been moving Polygon (MATIC), Avalanche (AVAX), and many others to new wallets.
Celsius reached approval with the United States Bankruptcy Court in New York on July 1st to take action. In a section of the ruling, where it also considered Celsius’s debtors and creditors, the court agreed that the company “may sell or convert any cryptocurrency other than BTC and ETH, cryptographic tokens or other assets of cryptocurrencies. Other than tokens associated with Hold or Custody accounts (collectively, the “Altcoins”) to BTC or ETH.”
When it comes to the company’s assortment of altcoins, Cardano (ADA) and Polygon (MATIC) are among its major holdings. As of Nov. 2022, Celsius held 103 million ADA and 90 million MATIC, according to court documents from last December.
Cardano (ADA)
ADA is the 8th largest cryptocurrency with a market cap of $10.3 billion. Trading at $0.293, ADA is only up 0.1% in the past 24 hours while managing $166.69 mln in volume, which is down 20% during this period. ADA did manage to go up by 17.56% year-to-date (YTD). However, it is still down 32.6% in the past year and 90.5% from its $30.09 peak in Sept. 2021.
Click here to learn all about investing in Cardano (ADA).
Polygon (MATIC)
The $6.9 bln market cap MATIC is currently exchanging hands at $0.7376, recording 5.3% gains in the past week and 16.4% in the past month while being down 2.95% in 2023 so far. MATIC did manage to record greens of 26.5% over the past year, but it was still down 74.6% from its almost $3 ATH in Dec. 2021.
Click here to learn all about investing in Polygon (MATIC).
Celsius’ other crypto holdings include 161k SOL, 3.3 million LINK, 1.8 million DOT, 200k LTC, and 106k AAVE. Much like ADA, MATIC, and SOL, these altcoins have also plummeted in value.
Speaking of the global crypto market cap, it has lost 60% of its value since hitting a $3 trillion peak in early November 2021. Currently, it is sitting at $1.24 trillion while Bitcoin trades around $30,700 and Ether at $1,885, down 55.5% and 61.3% from their respective ATHs.
Ever since the crypto market topped in 2021, there has been a lack of activity and interest in the space, not only from retail but also investors. Resultantly, the venture funding in crypto, too, dropped to $2.34 bln in the second quarter of 2023.
According to PitchBook data, a total of $2.34 billion were raised across 382 deals compared to $12.14 billion collected in the first quarter of 2022. During 2Q23 funding, the biggest raises were LayerZero’s $120 million Series B round and Worldcoin’s $115 million Series C round.
This marked the fifth consecutive quarter when crypto funding took a nosedive, which could be attributed to the regulatory headwinds in the US. During the US Securities and Exchange Commission’s (SEC) recent crackdown on the crypto sector, several leading cryptocurrencies have been classified as securities, including ADA, SOL, and MATIC.
Moving Forward in its Restructuring Plan
Besides these altcoins, Celsius’ actions have also been affecting the second-largest cryptocurrency. Just last week, Celsius made changes to its ETH staking strategy that exacerbated the already lengthy queue to activate new validators on the Ethereum network.
The company’s transfers of ETH into staking contracts have contributed to network congestion on Ethereum, causing delays for new validators who wish to participate. This situation occurred after Ethereum transitioned to the Proof of Stake (PoS) consensus mechanism. For those who do not know about this, with its Shanghai/Shapella upgrade in April, Ethereum enabled withdrawals of ETH staked in the Beacon Chain, which has subsequently led to a surge in demand for staking.
Celsius first redeemed $813 mln worth of staked ETH from Lido Finance, then transferred more ETH, all in a period of two days. The company has deposited $745 million worth of ETH since early June, putting additional strain on the already extended queue to establish new validators, which currently stands at about a month and a half on the Ethereum network.
In a PoS network, validators play a crucial role. They stake their cryptocurrency as collateral to get a chance to add new blocks to the blockchain, and in return for processing transactions and securing the network, they earn rewards in the form of additional cryptocurrency.
These recent actions come amidst Celsius’ ongoing restructuring process following the filing for bankruptcy protection in July and the subsequent sale to investment group Fahrenheit, which is backed by Arrington Capital, mining company US Bitcoin Corp., and Proof Group, among others.
It was in May this year that Celsius Network announced that it had chosen Fahrenheit’s proposal as the winning bid to manage a new entity to be owned by its creditors, directing itself out of bankruptcy. Fahrenheit provides the management team, technology, and capital to operate the new company (NewCo), which is 100% owned by the account holders of Celsius.
After filing for Chapter 11 protection, Celsius began seeking a buyer to guide its crypto lending and bitcoin mining businesses out of bankruptcy. Initially, the lender chose NovaWulf, which won the bid only to later lose it to Fahrenheit and even secured a backup bid with the Blockchain Recovery Investment Consortium.
Crypto Lender & its Founder Facing Lawsuits
Recently, Commodity Futures Trading Commission (CFTC) investigators concluded that Celsius and its founder and former CEO Alex Mashinsky broke US rules before the firm’s implosion. The agency’s enforcement unit determined that the company misled investors and should have registered with the regulator.
An independent examiner was appointed by the agency as part of Celsius’ bankruptcy case to investigate accusations that the lender had operated as a Ponzi scheme as well as to report on its handling of crypto assets.
If the majority of the CFTC’s commissioners agree with this deduction, the regulator can file a case in federal court in the near future, noted the report from Bloomberg, citing unnamed sources.
Mashinsky is already facing a lawsuit filed by New York attorney general (NYAG) Letitia James which alleges that he made false and misleading statements about the safety of Celsius. The lawsuit further claimed that Mashinsky defrauded investors out of billions of dollars in crypto by misrepresenting and concealing the failing health of the company. Moreover, he failed to register as a salesperson for Celsius and a securities and commodities dealer, argued NYAG in the lawsuit filed early this year.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” said James in the release. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
Before freezing customer withdrawals and filing for bankruptcy last year, Celsius reported $25 billion in assets under management in Oct. 2021, which fell to $3 bln by the end of the year. At the time, the New Jersey-based company cited “extreme market conditions” for freezing customer withdrawals only to file for bankruptcy a month later. The bankruptcy proceedings revealed a balance sheet hole of approximately $1.2 billion.
Mashinsky resigned as Celsius CEO in Sep. 2022, saying he was “very sorry about the difficult financial circumstances members of our community are facing.” A media report next month alleged he withdrew $10 million from a Celsius-linked account several weeks before the firm froze customer withdrawals.
As of right now, all eyes are on Celsius’ liquidation efforts as it has the potential to severely impact crypto prices, which only began to recover this year, and it is possible the lender’s selling in the currently thin market will reverse all this progress!
