Celsius, the crypto lender which had been plagued with some troubles lately had been taking drastic measures to curb its liquidation.
The lender was seen adding more Bitcoin on DeFi platform MakerDAO to reduce the price at which its position will be liquidated.
The lender recently halted withdrawals due to a severe liquidity crunch. If Bitcoin prices hit $16,852, the lender’s $522 million position will be liquidated, according to on-chain data.
Bitcoin is presently trading slightly under $22,000, but it is under severe downward pressure.
If Celsius is liquidated, it will be obliged to sell its holdings. Which will result in a $522 million dump of Bitcoin in the open market. A large-scale sale like this would be disastrous for Bitcoin prices.
Bitcoin to drop below $10k if Celsius liquidates
To avoid this, the lender has been steadily increasing its Bitcoin holdings over the last 24 hours. So far, it has added roughly 3000 Wrapped Bitcoin (the DeFi counterpart of the token) to bolster its position.
However, Celsius’s position is conditional on Bitcoin’s price remaining above the liquidation price. The lender will most likely risk bankruptcy and lose all customer funds if the level is breached.
A liquidation might also cause Bitcoin to plummet below $10,000.
The risk of mass liquidations is one of the biggest dangers right now that could see a very painful flash crash come in for #crypto! A few billion in Bitcoin and Ethereum could be market sold into desperately weak markets unless a lot more collateral is posted!
-Crypto analyst @TheCryptoLark
Celsius isn’t the only one with a problem. Microstrategy, which used its Bitcoin to buy more tokens, also suffers a $1 billion loss if Bitcoin prices continue to fall.
Is the crypto crash to blame for Ethereum’s depreciation?
Given Celsius’ substantial exposure to Lido Staked Ethereum (stETH), a depreciation in the token’s value looks to be the first trigger in the lender’s current dilemma.
While the depegging isn’t directly related to Ethereum prices, it did spark panic selling in both tokens as investors expected more losses. As a result of the abrupt price collapse, the value of Celsius’ balance sheet plummeted. Thereby placing the lender at risk of being liquidated.
To avoid future losses, the lender had to put a stop to withdrawals. However, the lender has come under fire for making high-risk bets with consumer funds. Particularly in low-liquidity, potentially volatile tokens like stETH.
Celsius is said to have lost about $500 million in the recent Terra crash.