Here’s Why A Celsius Liquidation Spells Doom For Bitcoin

Beleaguered crypto lender Celsius was seen adding more Bitcoin on DeFi platform MakerDAO to lower the price at which its position will be liquidated.
The lender, which recently suspended withdrawals due to a severe liquidity crunch, will see its $522 million position liquidated if Bitcoin prices hit $16,852, on-chain data shows.
Bitcoin is currently trading slightly below $22,000, but faces severe downward pressure.
If Celsius is liquidated, it will be forced to sell its position, dumping about $522 million worth of Bitcoin in the open market. A sale of this magnitude would be catastrophic for Bitcoin prices.
Celsius is adding collateral to ward off liquidation
To avoid such a scenario, the lender has been adding Bitcoin to its position over the past 24 hours. So far, it has added nearly 3000 Wrapped Bitcoin- the token’s DeFi equivalent- to reinforce its position.
But Celsius maintaining its position is contingent on Bitcoin remaining above the liquidation price. If the level were to be breached, the lender would likely face bankruptcy, and a complete loss of customer funds.
A liquidation could also potentially spur a Bitcoin crash to below $10,000.
The risk of mass liquidations is one of the biggest dangers right now that could see a very painful flash crash come in for #crypto! A few billion in Bitcoin and Ethereum could be market sold into desperately weak markets unless a lot more collateral is posted!
-Crypto analyst @TheCryptoLark
Celsius isn’t alone in its dilemma. Microstrategy, which leveraged its Bitcoin to buy more tokens, also faces a $1 billion liquidation if Bitcoin prices drop further.
Staked Ethereum, crypto crash to blame?
A depegging in the value of Lido Staked Ethereum (stETH) appears to be the first trigger in Celsius’ recent dilemma, given that the lender had a high exposure to the token.
This depegging, while not directly related to Ethereum prices, caused panic selling in both tokens as investors feared further losses. The sudden price dip in turn caused Celsius’ balance sheet to drop drastically in value, putting the lender at risk of being liquidated.
The lender then had to suspend withdrawals to prevent a further loss of funds. But the lender has faced widespread criticism over taking risky bets with customer funds, especially in low liquidity, potentially volatile tokens such as stETH.
Celsius reportedly lost over $500 million in the recent Terra crash.
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