Celsius Facing Severe Liquidity Pressure
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- Trend of the Week: Crypto lender Celsius is under severe liquidity pressure after a persistent stETH discount and user withdrawals.
- Price Movements: ETH/BTC ratio hits lowest level in almost a year.
- Market Liquidity: Coinbase share of BTC volumes reaches record lows.
- Derivatives: Investors load up on CEL short positions amid fears of Celsius collapse.
- Macro Trends: U.S bitcoin futures ETFs seeing larger outflows than Canadian spot based counterparts.
Trend of the Week
CEL token crashes as Celsius suspends withdrawals.
Last night, Celsius — one of the largest crypto lenders managing $12bn in assets — announced that it would be suspending withdrawals, swaps, and transfers from the platform. The announcement followed days of speculation that the decline in Lido Wrapped Ether (stETH) relative to ETH would put significant stress on Celsius, which held a large stETH position, much of which was deposited on Aave and borrowed against. Shortly before the announcement, Celsius sent about 100,000 ETH and 9,500 WBTC to FTX, suggesting the platform needed quick fiat liquidity. In addition, a large number of withdrawals from customers has severely stressed Celsius’s liquidity, particularly after the rumoured losses the platform suffered in the Terra collapse last month. Since the announcement, Celsius’s token (CEL) has plunged more than 50%, dropping from $0.36 to $0.15. The team did not provide any information on when withdrawals would be enabled, forcing investors to yet again wait with bated breath.
Price Movements
A sea of red.
As the entire industry descended on Austin, Texas for one of the largest crypto conferences ever held, markets continued to hit new lows for this investment cycle, with BTC and ETH closing Sunday night down more than 20% and 30%, respectively. US equities also registered their worst weekly decline since October 2020 following last Friday’s inflation print. Crypto markets now face another large-scale, negative news headline in the potential insolvency of Celsius, which could further shake confidence in the space.
In other news, the Ethereum network successfully completed the transition of the testnet Ropsten to proof of stake, pushing the Merge one step closer to reality. On the regulatory front, the SEC has begun efforts to investigate the Terra collapse, while the ECB seemed more hawkish than expected last week as they signalled their intention to raise rates not only this July, but potentially also in September.
ETH/BTC ratio hits lowest level in a year
The ETH/BTC Ratio has fallen to its lowest level since the May 2021 crash. This time, however, both BTC and ETH are struggling in the face of a bearish macro outlook. ETH specifically is facing headwinds in the form of declining DeFi and NFT activity on the network and as a result has significantly underperformed BTC. There has also been increasing concern regarding Lido Staked ETH (stETH), which is currently selling at a discount of about 0.94 relative to ETH. While stETH does not need to maintain a 1:1 peg with ETH, due to the fact it’s fully redeemable once the Ethereum merge is completed, a persistent discount is a concern for entities like Celsius who may need the liquidity immediately.
Market Liquidity
Coinbase BTC-USD market share drops to record lows
Following our recent story on FTX overtaking Coinbase in BTC-USD volume share, we observed that Coinbase’s share of volume has decreased even further since we first reported the trend. Coinbase’s market share of BTC-USD volume has fallen to 27% this week, its lowest level we have on record. This dramatic decrease follows Coinbase’s record high market share reached in December last year, where the exchange accounted for nearly 50% of total volume.
Binance dominates Tether markets
While Coinbase has historically dominated USD volume, over the past three years, Binance has emerged as the market leader on BTC-USDT markets. Its market share has grown steadily from around 20% to over 73%, showing remarkable resilience to both crypto market cycles and the exchange’s regulatory debacles in numerous jurisdictions. The chart above shows that Binance started gaining traction at the end of 2020, benefiting from weakening competition and surging crypto prices.
By contrast, OKX has seen its market share plummet since 2019, from as high as 70% to just 8% currently. The decline was particularly sharp between October and November 2020, when the exchange was forced to suspend all crypto withdrawals for five weeks while Bitcoin was in full price discovery mode, gaining 80%. This led to many users (including Chinese miners) permanently leaving the exchange. Despite OKX launching a mix of compensation and rewards programs in an attempt to retain its user base, its market share struggled to recover. Huobi’s market share has fluctuated over the past three years, increasing modestly in 2020 before losing most of its gains in 2022 as crypto trading volumes plummeted.
We observe a similar trend when looking at the average BTC-USDT trade size on the three exchanges. The average BTC-USDT trade size on Binance doubled from less than $1K to around $2K in the last quarter of 2020 suggesting that the exchange managed to attract more professional traders. The average trade size on Huobi and OKX has been declining steadily since October 2021 and is currently hovering at two-year lows.
Ethereum price slippage increases.
Ethereum’s price slippage has increased over the past few days, while slippage has held steady on Bitcoin markets despite the recent market volatility. Price slippage measures the difference between the expected cost of a trade and the final execution price. On Binance US, ETH-USD slippage has spiked from .1% to .15% between June 9–11, on Itbit from .06% to .12%, and on Bitstamp from .05% to .07%. Overall, since the start of June, Ethereum’s price slippage has displayed higher volatility and indicates that market makers are providing liquidity asymmetrically between crypto’s two largest assets.
BTC liquidity improving so far this year
Despite the recent extreme price moves, liquidity conditions as measured by the bid ask spread have improved in the first five months of 2022, relative to the year before. The bid ask spread represents the cost to trade and is defined as the difference between the best bid and the best ask for a trading pair. Typically, tighter spreads are a sign of greater liquidity. Above we chart the bid-ask spreads for BTC-USD pair on major fiat exchanges. Spreads are also influenced by exchanges fee structure and the level of competition between market makers.
We observe that they have declined by nearly 3bps on Gemini, 1 bps on Itbit and by around .5bps on Bitfinex and Kraken. The trend is mirrored by declining long-term realized volatility and could indicate that the market is gaining in maturity.
Derivatives
Investors pile into shorts of CEL amid insolvency fears.
Panic regarding Celsius’ insolvency was evident in the futures market this weekend, with open interest for CEL perpetual futures spiking from about 1.5m only a week ago, to over 35m this weekend. The funding rate offers a look into the directionality of these bets on the future of Celsius, which were unsurprisingly heavily skewed to the short side. We observed the funding rate moved from roughly neutral, where it has consistently sat for some time, to heavily negative as investors paid an increasingly larger premium to go short $CEL on FTX.
ETH-denominated open interest continues to increase despite liquidations.
Despite waves of liquidations amid falling prices, open interest for ETH perpetual futures rose over the weekend in a sign that traders continue to place directional bets on the market’s next move. Funding rates turned negative, suggesting traders have a bearish outlook. Trade volumes have also surged over the past few days, with more than $30bn traded on June 12th compared with just $10bn on June 10th. BTC funding rates remain close to neutral, suggesting ETH markets are bearing the brunt of the market sell-off, and could drive future volatility over the next few days.
Macro Trends
U.S Bitcoin futures ETFs see larger NAV decreases than Canadian spot-based counterparts.
Both Canadian and American crypto ETFs have experienced strong declines in NAV over the past 6 months. Above, we chart the net assets of the three U.S futures-based ETFs trading on the NYSE in addition to the largest spot-based ETFs trading in Canada. The three American Bitcoin futures ETFs issued by ProShares, VanEck and Valkyrie saw their net asset value plummet by an average of around 48% over the past six months. Spot ETFs based in Canada, however, registered a smaller decline of 26% over the same period. Canada was the first country to approve a spot-based Bitcoin ETF in February 2021. Despite the underperformance, American ProShares futures-based ETF, which started trading in October 2021, has attracted significant interest and is the closest competitor to the Purpose ETF in net assets.
ECB raising interest rates for first time in a decade.
Last week, the European Central Bank changed their approach to handling interest rates for the first time in over a decade. The ECB last raised interest rates in 2011, but they announced their intention to raise key interest rates by 25 basis points in July and hinted at a larger increase in their September meeting, if deemed appropriate. The announcement comes after Eurozone inflation hit a record high in May of 8.1%, exacerbated by the ongoing war in Ukraine. Charted above is the relationship between the ECB deposit rate, which interestingly still stands at negative 0.5%, and Eurozone inflation, as we can clearly see the effect the regime of ultra low interest rates has had on Eurozone inflation recently.
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