YEREVAN (CoinChapter.com) – Cryptocurrency lender Celsius Network filed for Chapter 11 bankruptcy protection in July and made headlines for its $1.2 billion hole in the balance sheet. The lender’s token CEL bottomed out at approximately $0.09 on Jun 13. However, the digital asset pulled a spectacular 5,000% rally since, briefly peaking at $4.63 on Aug 15.
The bullish wave has subsided since the peak, as CEL lost 40% of its valuation and stood at $2.8 in Tuesday’s European session. However, the reasons behind the explosive rally remain noteworthy.
Why Celsius CEL rallied
In detail, valued at $3.5 billion, Celsius was among the companies hit hard by the Q2 market collapse. Due to extreme market conditions, the crypto lender had to halt all swaps, transfers, and withdrawals between accounts and filed for Chapter 11 bankruptcy.
However, the Celsius utility token pulled off a ‘phoenix’ in Q3, with several contributing factors behind the rally.
CEL short squeeze
Celsius retail investors contributed to the rally by creating a short squeeze, organized by an ‘army’ of CEL traders. In detail, a short squeeze is a trading phenomenon that creates rapidly rising prices.
It may occur when the asset has a large number of short traders, and the price jumps up unexpectedly. Hence, the uptick forces short sellers to buy back the asset at a higher price to close their positions.
The condition plays out when a significant number of short sellers exit the trade. As more short positions join the buyers, the bullish incentive snowballs. In a way, a short squeeze acts as a self-fulfilling prophecy and fuels the bullish momentum.
According to one of the CEL traders, “it is time to stop panic selling.”
However, short squeezes increase the token volatility and are hard to sustain. CEL confirmed the assumption by dropping 40% on Aug 15-16 and threatening to go lower in the upcoming sessions.
Celsius under more strain
Meanwhile, Celsius might be in a deeper financial rut than expected, which could reflect on the CEL price, short traders, and buyers.
Kirkland & Ellis, a law firm hired by the crypto lender to manage its bankruptcy proceedings, turned in a new court filing on Monday to the U.S. Bankruptcy Court for the Southern District of New York. The latter included financial projections that Celsius will run out of cash by October.
The filing also stated that the crypto lender holds $2.8 billion less in digital assets than it owes to depositors. Meanwhile, all creditors, including users who expect $4.7 billion from the crypto exchange, will get their first day in court on Aug 16.
They might have a few questions to ask Celsius’lsius’ monthly spending, considering the exchange has been shut down since the bankruptcy filing. The lender declared operating expenses would total $57 million in August, $20.8 million of which are for largely unexplained “capital expenditures.”
Potential buyout deal?
ConsidCelsius’lsius’ dire financial situation, several financial institutions proposed to buy the lender out of their debt. In mid-July, banking giant Goldman Sachs was propositioned to broker a potential deaCelsius’ssius’s assets in a bid worth $2 billion.
Ripple Labs, a blockchain company involved in a lengthy lawsuit with the U.S. Securities and Exchange Commission (SEC), expressed its interest in buying the debt-ridden crypto lender.
We are interested in learning about Celsius and its assets, and whether any could be relevant to our business
commented a Ripple spokesperson on Aug. 14.
Also read: Celsius offers creditors reduced payout now or long-term crypto pay.
Meanwhile, as the Celsius buyout attempts remain incomplete, the lender is under pressure to pay off its creditors. Additionally, the CEL rally is unlikely to hold the recent gains for long, albeit granting its holders 5,000% returns in two months.
