After crypto lending platform Celsius suspended withdrawals of deposits last week, it seemed unlikely that its native token would move higher.
Yet the crypto bank’s CEL token has soared 218% since June 13. What gives? A short squeeze, that’s what.
It appears that investors have joined forces and started buying the token to put pressure on short sellers who were profiting from Celsius’ troubles. The move brings to mind the squeeze meme stonks fans exerted on hedge funds who’d sold short GameStop back in early 2021. The hashtag “#CelShortSqueeze” has gained momentum on Twitter.
According to the developing narrative, investors have targeted the CEL shorts as the same actors who triggered the ‘bank run’ which caused Celsius to freeze withdrawals.
A so-called short squeeze occurs when a heavily shorted asset starts rising in price, usually fueled by retail buyers. Investors who had been betting on the price to continue falling are then forced to cover their positions, adding buy pressure.
This squeeze appears to be focused on removing CEL from the giant cryptoexchange FTX, where there is apparently limited CEL liquidity.
A Dune Analytics dashboard details the amount of CEL tokens left on FTX. According to the query, the amount of available CEL has dropped by over a million tokens in the last two days.
This is important because without an adequate supply of CEL tokens on FTX, subsequent buys will push the price up higher relative to if there was deep liquidity.
As short sellers must buy back CEL in order to cover their positions, these buys could raise the price given the relatively low liquidity. In turn, this leads to the price pumping, leaving the remaining short sellers even further in the red and at risk of liquidation if these trades were made on margin
Of course, those looking to maximize profit will have a split-second to time the absolute top. GameStop’s GME spiked 400% to $325 in a single week in January 2021 before falling back to earth a week later.