This is a market update. We’re going to look at two key things. First, more news on the Celsius situation and what they’re doing to try and reduce their leverage. I’m going to show you some facts on this and then the key thing this week, which is the Fed’s rate decision and what they’re going to do because that’s going to move markets as well, so there’s a ton going on and it’s a really complex situation right now in the macro and with crypto and this Celsius situation as well.
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Bitcoin price
So, as you can see here, we’re trading around $22,000. Right now, the market is trying to find a level right here, but there is a huge kind of Elephant in the room, which is Celsius wrapped Bitcoin position on making a DAO. And I want to show you where they are with that and how kind of in the lurch that they are with their leverage position there. So, in terms of the price, things should get really volatile around the rate decision this week as well, which is happening tomorrow on the 15th.
So, that’s when the Fed is going to come out and tell us what the next interest rate hike is going to be, and the market now thinks this is going to be 75 basis points, not the 50 basis points that were expected. That drove the market much lower, kind of over the weekend and on Monday as well. That was part of the reason why Celsius basically got themselves tied up with being over leveraged as well, because it obviously sent the market down, so what we can see here really is that this 22 is kind of a key level because that’s where some liquidations were going to happen for Celsius. Celsius could have added some collateral and actually moved that lower. So I’ll show you exactly where that is, but in terms of levels right here, we’re really in uncharted territory now.
If you go to the 200 week moving average, you can see Bitcoin is right on that now. I’m just going to reset the chart right here if the 200 week moving average was actually visible, which it isn’t right here, we’re actually right on it, so this is like a multi-year um for the last kind of 10 years. It appears that the 200-week moving average has actually been calculated. We’re right at that level now, so in terms of like ultra long-term support. This is a kind of it and there’s a ton of kind of on-chain cost basis that are around this level as well.
So this is a very key level. It does not mean that it’s the bottom here though, because essentially what we’re trading on now is liquidity and nothing else. We’re trading on how liquid you are, you know, with your leverage right. Essentially, this is Celsius, which is kind of the big question right now, like how liquid are they, how much do they have in the tank to put more Bitcoin into their leveraged position? Can they afford it?
The market is trying to figure this out, and something really interesting is happening right now. You can see here that you can see that both Bitcoin and Ethereum are really really down in the last 24 hours. Bitcoin’s down 8%, Ethereum’s down 2%. So you look at these coins, all kind of having a dead cat bounce off the lows. Why on earth would these more speculative altcoins come up around 10%, but Bitcoin itself is down 7.5%? That’s such a strange price movement. Well, the reason is that there is a specific player in the market, which is Celsius. Who really is the market? This is essentially the big whales really trying to turn the screw here on Celsius and find their liquidation level. So what you’re seeing are big players at work right now trying to essentially cart Celsius.
So why is it that this is really key here? Because this 22 level is where Celsius’s previous liquidation threshold was around this level. So that’s really important. We need to get on to that. First of all, though, what I want to touch on is rates. Also, if you do want to trade this, which is pretty crazy, but if you are a trader and you want to trade this volatility.
Interest rates
The key rate though, and this is going to affect Celsius and crypto this week, is the Fed’s latest rate hike, originally expected to be 50, and now expected to be 75 basis points. From what I’ve been reading, essentially, the Fed has leaked that they are going to be raising 75 basis points now because of the terrible inflation figure last Friday.
So, that was way over what people expected, and so the Fed has to basically become extra hawkish and raise rates by 75 basis points in one meeting, which is a lot, and that’s obviously sending all risk-assets lower and what triggered some of this Celsius sell-off.
So, as we can see, the US 10-year is back at range highs of around 3.2%. So, we were coming off this and things were stabilizing when that inflation figure came out. We’re back to these multi-year resistance levels now, 75 basis points can potentially. That what’s going to happen? So, I think the market is pricing this in now.
You can actually see this right here from FTX. You can see what the market is pricing in right now. The market is pricing in a +74bps move. So that’s what’s being priced in right now. That was what Monday was about, you know, interest rates going up inversely, risk assets going down, and so that’s what we see now for the next three meetings, a 200 basis point cumulative move over that time, so that’s 2 times 75 and 1 time 50. It’s a ton of interest rates, a ton of rate hikes that just weren’t expected a few months back.
So as long as inflation stays high and the fed keeps rising rates like this, just expect more and more pain in equity and crypto markets in risk assets. This is what is priced in at the moment, so if a 75 basis point rate hike comes tomorrow, that will not be surprising to the market. The market is pricing that in. If it comes in at 50, that’s going to be below market expectations. I wouldn’t expect the market to rally on that though. That would tell the market that the Fed is totally detached from reality.
So, essentially, what we’re seeing here is that we are raising rates, raising the price of money, and raising the strength of the dollar Versus everything else, and, conversely, you’re seeing all risk assets come down, and crypto is that. And then, obviously, a recession is coming from this, so eventually we’re just going to see oil tick up, commodities tick up again and again and again, and then suddenly everything, there’s going to be a big crash of all that demand as the recession hits. So that’s what we’re really going into, which is important for Celsius as well.
Celsius blow up
So, let me get on to that. So, now Celsius essentially has loads of wrapped Bitcoin and staked ETH in DeFi. That was obviously the price coming down that they had loaned dollars against. This means that, essentially, the price of the collateral that they had on account for their loan was coming down. The big thing here is that Celsius owned dollars against a risk asset, and that means they’re always on the hook for those dollars. So, let’s say Bitcoin was worth 41.5 billion, right? So they had $1.5 billion worth of Bitcoin on hand. Let’s say they are the makers and they borrowed, let’s say a billion dollars, against that. Well, Bitcoin comes down in half, but you still have the dollars loaned that you need to pay back. So, it’s just like anyone right when you get a margin call, then you need to pay back the loan. The thing is with Celsius is that obviously they had customers withdrawing assets, and that’s where they had to stop the assets because they had these leveraged positions, and they also had a lot of staked ether as well, which you can’t withdraw, but they were honouring withdrawals from their platform.
So, it’s a really complex situation. I don’t know all the specific things about Celsius and kind of what they’re doing here, I just have bits of information, so take this.
Right here is Celsius’s maker Dao vault. Dao is a protocol where you can put assets on and then loan a stable coin against that and you pay an interest rate. Now what the market is hunting here is essentially Celsius liquidity and ability to have collateral to back their loan. So what you can see is that their liquidation price is now $16,852. We’re just going to click into the history right here and see what they’ve done in the last few days.
On June 14th, they added another 2,000 wrapped bitcoins to this vault in order to lower the liquidation price. Which Bitcoin is that Celsius is which their client right is? So, you can see June 13th, they added 4,000 wrapped Bitcoin on June 12th, which is at 1,165. So, obviously, as the price of Bitcoin comes down, your collateralization ratio goes down, and you need to borrow at least 150%. The last liquidation price is about 21–22,000. So they’ve added wrapped Bitcoin on here to take the liquidation price down to 16,852.
You can see, though, that they can generate around $90 million. I think $90 million worth of diet now. They have to pay that back, right? So they have two options here. They either pay back those dollars right away, and that’s an issue because where are those dollars now? Or maybe they just keep adding wrapped Bitcoin to lower the liquidation price. So this is what the market is essentially trying to turn the screw on. It’s like, hey, we know that your liquidation price is 16,800. So we are going to sell and sell and sell and short the market and turn the screw on you, because once it gets down here then the whole position is liquidated and it’s worth half a billion. So, the market is obviously looking at Bitcoin versus all coins, and it’s going to keep depressed until, you know, one of the other parties in what’s happening here gives up essentially. Celsius has a few options here. They can pay back the loan and basically take a huge haircut on the wrapped Bitcoin that they have, and that means clients take a haircut as well. They can potentially raise funds from investors to further back up the collateral that they have on their account. That would be difficult because who is going to give the money now because the brand has been solidified?
So, how do you know if they have to raise money from investors, they’re going to either have to sell equity, and quite a lot of equity, or they may have to get, you know, a competitor to try and come in and take a controlling stake? I don’t know what’s going to happen. All of these are just speculations, so all of this is speculation on my part. Don’t take it as an obvious thing that will happen, but you know this is where the market is looking and saying well if Celsius is weak. They’re going to try and test Celsius by driving Bitcoin lower by driving Ethereum lower, which is the position that they had and really try and turn the heat up on Celsius.
So, that is a market dynamic that we’re going to have to look out for if interest rates keep rising and rising and rising. That means the price of all these assets will keep falling, which makes things, you know, more difficult on Celsius all the time and other players in the market that have leverage as well. So you’re seeing all of these liquidations happen now and so every liquidation that happens, the price just gets dumped on a little bit more and then eventually, when the leverage is out, that is when all the ashes are there and then you start to get these little shoots again.
So, how long that takes? We don’t know, because this recession could be very quick this year. It could be going into next year, and so there’s just a very complex situation with crypto and the macro right now
Collateral and Liqs
When it comes to Bitcoin and ETH, because these are the largest assets and they’re actually used as collateral, whereas most other cryptos aren’t to any massive extent. They’re going to be hit the most with these forced liquidations, and so don’t look at the chart going back and saying, “Well, these are good levels from the past.” What we’re looking at now is the pain. You know, how leveraged are people? What are the levels that they need to get out at in terms of forced liquidations and how hard and deep are these rate hikes going to go? Those are really the three things to look at. Only when the leverage is out can you start to even think about things kind of settling and then going back to some sort of kind of out of the bear market, but obviously the macro If the recession is here for a while, you’re not going to see crypto suddenly, you know, rise up. It just has to go in tandem with that as well. So, that’s where a really complex picture emerges.
[This article is a transcription of a video made by MoneyZG]
Original video: https://youtu.be/8FG4MkY1Toc]
