Were bitcoin to drop below $15,000, liquidations could accelerate so much that posting enough collateral or raising funds to stop the fall may become hard
Save time by listening to our audio articles as you multitaskOverall, bitcoin is about 70% below its peak in November; ether, another cryptocurrency, is down by around 80%. As prices have fallen, cracks have appeared in the crypto infrastructure. Babel Finance and Celsius, two crypto lenders, have paused withdrawals after struggling to meet redemptions; their rivals have trimmed their balance-sheets, causing a credit crunch.
Start with valuations. Some of the most commonly traded crypto tokens are complex products such as derivatives and “tokens” issued by DeFi platforms, for which there are no established valuation models. The lack of an anchor means trust in pricing can vanish in a jiffy; the effect is magnified on weekends, when trading volumes are thinner. Problems in parts of the crypto market can end up rippling outwards, not least to bitcoin, the benchmark for the entire universe.
Celsius is a case in point. In December it claimed to have $24bn in crypto assets under management, which it had lured by offering yields to depositors of as much as 18%. To achieve those returns, it made loans to marketmakers, hedge funds and DeFi projects. When prices sank, however, so did the value of those assets. Some, such as the $400m Celsius held in “staked ether”, a derivative, proved illiquid. That left the firm unable to meet growing demand for withdrawals.
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