The Chapter 11 bankruptcy proceeding of collapsed digital asset lender Celsius remains one of the hottest subjects in the entire cryptocurrency scene.
With billions in user funds unlikely to ever be recovered and fresh scrutiny over founder Alex Mashinsky’s fiduciary responsibility coming to light, there is every chance that Celsius’ financial situation is even worse than previously signalled.
On top of that, CDPQ, a leading Canadian pension fund with over CAD$390bn (US$303bn) in net assets under management, announced on Wednesday that it has written off a US$150mln investment in the lender.
“We knew there were challenges… but perhaps we underestimated those challenges,” said CDPQ’s chief executive officer Charles Edmond.
Amid the constant barrage of bad news, Celsius’ native token CEL must have absolutely flatlined, right? Quite the opposite.
In the two months between June 14 – just as Celsius announced its fateful asset freeze – and August 14, Celsius skyrocketed nearly 1,500% from US$0.28 to over US$4.
While a dollar has been knocked off since, the fact remains that CEL token is seemingly defying the odds with a significant pump… what is going on here?
#CelShortSqueeze
If crypto is not lacking anything, it’s opportunists, and CEL token’s rally is a story of two halves of the opportunity coin.
That is what can be gleaned from comments by Jackson Zeng, chief executive officer of Melbourne-based cryptocurrency brokerage Caleb & Brown.
Short traders – those betting on CEL to fall – were quick to pile in the second Celsius started to look in trouble.
According to Zeng, who has followed the situation closely, “the demand for shorts was so high that it cost 0.5-2.5% a day to short CEL,” but it was a price worth paying for a digital asset destined to flatline.
Then #CelShortSqueeze started trending on Twitter.
A short squeeze occurs when bulls rally in support of a stock (or in this case a token), driving market price up and placing pressure on the short speculators.
In the case at hand “more than US$10mln of CEL short positions have been liquidated (in two months),” said Zeng.
If it sounds similar to the meme stock frenzy in 2021, then it should: Skyrocketing Gamestop and AMC stocks were the result of a short squeeze campaign organised over the Reddit messaging board.
CEL was a prime candidate for a volatile short squeeze, since 90% of the entire CEL token supply is held in just 10 wallets.
“None of these have transferred CEL in over two months, which makes it likely they
are frozen as a result of the bankruptcy proceedings,” noted Zeng, adding: “Those tokens cannot be withdrawn to exchanges, resulting in a lack of sell side pressure, allowing a short squeeze.”
CEL the high
More than a hashtag, #CelShortSqueeze has turned into a massive online community including a thousands strong Discord server giving tips, how-to guides and general solidarity.
Shorts ???? will bleed bad today???????? paying 1,699 % on spot short positions Let’s #CELShortSqueeze these parasites #CelArmy #CommunityFirst pic.twitter.com/RPxYiejuLC
— Pontoni (@Pontoni3) August 18, 2022
A lot of the conversation surrounding #CELShortSqueeze feels activist, occasionally even threatening in nature; a rally against greedy short sellers trying to take down their favourite cryptocurrency.
“Celsians should unite and ensure that the counter attack is in kind… The community should aim to do contagion damage to the attackers, this means that the attackers lose so much money they become insolvent,” proclaimed Twitter user @AliDemi66792024.
“Shorts will bleed, let’s #CELShortSqueeze these parasites,” warned another.
But beyond the hyperbole, many short squeezers are simply seizing on an opportunity to make a return.
Zeng said: “Given that there is less of a traditional institutional presence in crypto than traditional markets, it’s more likely that the short squeeze was caused by opportunists that found a good trading opportunity, rather than by activists.”
How long for the short squeeze?
Investors looking to jump in on the latest meme stock or crypto are advised to exercise caution in going long on an ultimately failing enterprise.
“(Celsius) would likely purely be a speculative gamble on a temporary aberration in the market structure which should eventually unravel upon completion of, or during the bankruptcy proceedings,” said Zeng.
And if that 90% of withheld CEL tokens is unlocked, the sun could definitively set on the Celsius rally once and for all.