Why Violated Crypto Lender Soared 20% Today

What happened

In a remarkable twist, bulls have continued to change the script for cryptocurrency banking companies Celsius (CEL 5.29%), with the value of this project’s CEL token increasing by 20.6% in the last 24 hours from 10:30 a.m. ET. Since hitting a low of about $0.15 per token in mid-June, CEL has rebounded to more than $3 per token.

Despite recent news that a major Canadian pension fund has written off its stake in Celsius, investors appear to be increasingly optimistic about this crypto lender’s ability to survive. Higher crypto prices in recent months have helped sentiment across many distressed lenders in this sector. Additionally, news that Celsius has received court approval to sell its mines Bitcoinas well as a number of liquidity-providing offers, appear to have many investors believing that Celsius can get through the restructuring with less damage than first thought.

So what

It’s been a tough year for Celsius, to be sure. In April, Celsius indicated that regulatory issues surrounding the company’s Earn product had caused the platform to hold unaccredited investors’ tokens. In May, the algorithmic stablecoin collapsed Terra (LUNC 0.76%) led to fears of contagion, and triggered a run on the bank among various lenders in the sector, including Celsius. This led to the ultimate freeze of withdrawals, exchanges and transfers in June, a move that in turn brought this token to its all-time low in mid-June.

Like other cryptolenders, Celsius has used a model where depositors can earn higher returns on their deposits, with deposits lent to borrowers paying relatively high interest rates. Celsius collects the profits on these transactions, much like a bank, allowing holders of CEL tokens to earn preferential returns on their investments. Thus, the demand for this token is linked to transaction activity within the Celsius ecosystem.

What now

Right now, crypto investors seem to be keen on the idea that a resumption of normal lending and borrowing activity can be achieved at Celsius. Its ability to cushion its losses by selling its mined Bitcoin (although this does not cover operating expenses and overhead) is a good start. And if a white knight comes in to save the day with a big capital injection, and stability in the overall crypto sector is regained, perhaps Celsius and its CEL token are smart bets.

That said, Celsius remains significantly underwater in terms of its assets versus its liabilities. In addition, we’ve seen some structural cracks in the crypto sector that provide some serious uncertainty for investors looking to scrape the bottom of the barrel right now. Accordingly, those interested in Celsius as a momentum play may want to approach a position cautiously.