Why Is Bankrupt Crypto Lender Celsius Rallying Today?

What happened

After briefly falling below the $0.90 level this past weekend, Celsius (CEL 16.08%) has seen a fairly notable uptick through early afternoon trading on Monday. As of 1:30 PM ET, this token is up 6.5% over the past 24 hours. Now trading around $1.35 per token, Celsius is now up more than 55% from its weekend lows.

As many crypto enthusiasts may be aware, Celsius is a centralized lender in the crypto space that has filed for bankruptcy. Concerns over discrepancies related to the company’s reported gap between liabilities or user deposits and assets continue to plague this symbol.

Initially, Celsius reported this gap to be around $1.2 billion. However, in a more recent Chapter 11 filing Thursday, that amount was listed at more than $2.8 billion. Material weakness resulted as many investors jumped off the track throughout Saturday.

That said, a series of periodic short squeeze rallies have resulted in a series of impressive short-term gains for Celsius. This has given more speculative interest in CEL as a trading opportunity. Now investors are questioning whether this latest rally can be sustained.

So what

While Celsius reportedly has about $167 million in cash on hand to fund operations through October, it’s unclear how much of that cash will be redirected by the courts to repay creditors, or how long the restructuring process will take. Some large institutional investors, such as the Canada-based pension fund Caisse, have already written off large bets on Celsius. Thus, the smart money seems to think the party is over.

Although the road ahead seems bumpy for this bankrupt crypto lender, speculators are still out there looking to scalp any gains from short-term rallies. In the near term, Celsius therefore appears to be a likely candidate for severe volatility.

What now

Investing in any crypto project is inherently risky. However, this risk profile is amplified for difficult crypto lenders like Celsius. Right now, most investors seem to be steering clear of this project, with upside demand limited to traders and speculators.

Celsius has provided investors with a prime example of the dangers of seeking above-market returns in the cryptocurrency space. When things seem too good to be true, they often are. And at some point, the return-generating models that investors have grown accustomed to will stop making sense.

Personally, Celsius is a project I think is best avoided by investors, given the dim outlook going forward.