Crypto lending platform Celsius Network has a gap of about $1.2 billion on its balance sheet, with most of its liabilities owed to its users. In addition, the company has filed for bankruptcy protection, so its future looks bleak.
Still, the valuation of Celsius Network’s native utility token CEL is up over 4,100% over the past two months, hitting around $3.93 on Aug. 13, compared to its mid-June low of $0.093.
In comparison, top coins Bitcoin (BTC) and Ether (ETH) are up 40% and 130% over the same period.
Takeover rumors behind CEL explosion?
Technically, the price rally turned CEL into an overvalued token in early August when its Relative Strength Index (RSI) crossed the 70 line.
Takeover rumors appear to be behind CEL’s upside strength. Specifically, Ripple wants to buy Celsius Network’s assets, according to an anonymous source cited by Reuters Aug. 10.
Reuters reported that Ripple is interested in Celsius assets, but there is no confirmation from either company yet. Celsius has halted withdrawals from the platform since June and has filed for Chapter 11 bankruptcy, which will allow them to gradually repay their debts.
— Tajo Crypto (@TajoCrypto) August 10, 2022
CEL’s price more than doubled after the news broke.
Rumors also surfaced in July that Goldman Sachs intended to acquire Celsius Network for $2 billion. CEL was changing hands for just $0.39 at the time.
CEL price short squeeze
An army of retailers also appears to be behind the CEL’s massive bullish run over the past two months.
Some traders have organized a short squeeze to cap CEL’s downside prospects. A short squeeze occurs when the price of an asset suddenly increases, forcing short sellers to buy back the asset at a higher price to close their positions.
Bitcoin & Celsius update
BTC is very choppy, so my focus is on Altcoins & CEL. I want BTC to hold 22,000 for bullish bias. Cel wants to break out again, I want to buy more about 2.6 #CELShortSqueeze Army behind, could CEL pump to $3 next?
LIKES/RETWEETS ARE APPRECIATED pic.twitter.com/5axZiwcl1Q
– WSB crypto mod (@traderrocko) August 12, 2022
It is possible to create a short squeeze as CEL reduces the circulating supply, mainly due to the Celsius Network token transfer freeze.
Interestingly, as of August 13, FTX had about 5.1 million CEL tokens, about 90% of the total circulation on the exchanges. Meanwhile, the amount of open short positions on the exchange stood at around CEL2.66 million versus the monthly high of CEL2.96 million on Aug. 11.
In other words, short traders closed about 300,000 CEL positions in just two days.
What’s Next for Celsius Toke?
Short squeezes are difficult to sustain over long periods of time, as history shows.
Such prospects put CEL at risk of an extreme correction in the coming weeks or months. As said, the token is already overbought, which further reinforces the downside prospects.
Drawing a Fibonacci retracement chart from a $6.5 swing high to a $0.39 swing low provides preliminary support and resistance levels for CEL. Notably, the token is now targeting a breakout above its 0.618 (~$4.21) Fib line, with its upside target at $5.25, a 45% rise from today’s price.
Related: Crypto markets rallied and sentiment improved, but retail has yet to FOMO
Conversely, a break below the support level at the 0.5 Fib line (~$3.48) risks CEL crashing towards $2.75, down 25% from current price levels.
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