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Celsius Network Is Bankrupt, So Why Has CEL Price Soared 4,000% In Two Months?

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.

CEL/USD daily chart. Source: TradingView

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.

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.

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.

FTX sports trousers. Source: Legacy Synthesis

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.

CEL/USD three-day price chart. Source: TradingView

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.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.