Crypto Week: The Worst Seems to Have Become a Reality

Bitcoin (BTC) prices are sliding down towards crucial support level at $20,000. It is worth noting that Bitcoin prices have never dropped below their previous upward cycle peaks before, which is exactly $20,000 in 2017. So, any slide below this figure would certainly be an extraordinary event. Many investors are betting on this level where most of the open interest on BTC options is located. The same situation can be seen with Ethereum, where open interest is seen to be  at $1,000.

Everybody who sold put options has to sell the underlying asset in the spot market to hedge the option difference. The more prices are sliding towards the options’ strike price, the more of the asset has to be sold. So, the further down the price of BTC  goes, the more bearish pressure will be put on Bitcoin. Some of the large market players may not survive this and may become bankrupt.

Crypto investors are now focused on the Celsius crypto lending platform that has promised fixed returns for investors that invest in DeFi protocols. The issue is that despite $12 billion under management the company chose to deposit its funds in risky assets. The platform  put $500 million into UST, which recently crashed causing the company’s finances to deteriorate.  Around $400 million are locked in ETH 2.0 via Lido protocol and its stETH token. The problem is that ETHs that are allocated in the Beacon chain  are locked for quite a long period of time and therefore cannot be withdrawn. That is where the Lido protocol and its stETH token come to the rescue. The protocol accepts ETH in exchange for stETH that must be locked in true ETH at 1 to 1 ratio. And that was true during the bullish crypto market.

However, the situation was very different for the bearish market when the stETH price deteriorated, threatening a margin call for positions backed by stETH. Then finally Celsius management to back its margin in Maker protocol with $400 million. The margin call emerged when the BTC prices fell below $20,000-22,000. All in all, the company is now in a stalemate that could be resolved either with new borrowings, strategic investment, or the sale of the business. The rival Nexo has extended its interest to acquire Celsius, but the latter has declined any talks so far.

In other words, it is quite an unfavorable situation right now in the market to open long positions. The existing market sentiment suggests that BTC prices may plummet to $20,000 soon and continue to dive further to $10,000. The crypto winter seems not to be coming to the market just yet, and investors should be very patient to survive this severe turbulence with a profit.