I wrote extensively about the strong correlation between bitcoin and the Nasdaq Composite and the inverse correlation between bitcoin and the strength of the dollar for Early Investing subscribers today. But crypto’s rich and diverse ecosystem has market forces of its own. And those market forces sometimes lead to unexpected outcomes.
When word first leaked that crypto lender Celsius was in trouble, many expected the worst. To be fair, that was a reasonable expectation. Celsius provided high-yield savings accounts to both retail and institutional investors. Extreme market volatility forced Celsius to pause withdrawals and transfers on June 12. And over the next several weeks, Celsius struggled to right the ship — or at least enter bankruptcy proceedings in a less vulnerable state.
Celsius’ big move was to repay loans that allowed it to reclaim more than $1 billion in collateral. Celsius repaid a $41.2 million loan to Maker that allowed it to reclaim $448 million in collateral. It unlocked about $195 million in collateral by paying off its debt to Compound. And in news that’s critical for Crypto Asset Strategies members, Celsius repaid most of its Aave loan.
Decrypt reports that Celsius made an $81.6 million payment to Aave this week before filing for bankruptcy on Wednesday. The payment, which unlocked more than $400 million in collateral, means Celsius now owes Aave just $8.5 million.
That’s a good outcome for Aave. According to bankruptcy filings, Celsius has $4.3 billion in assets and $5.5 billion in liabilities. That means Celsius owes creditors $1.2 billion. And Aave won’t recover too much more.
But that’s okay for Aave investors. Aave’s current market cap is about $1.3 billion. An $8.5 million hit isn’t ideal. But it’s less than 1% of Aave’s market cap. And it’s much better than losing $90 million, which was a possibility when the Celsius saga began.
Last week, Aave was trading around $73. As of this writing, it’s trading around $93. That’s an increase of more than 27%. Bitcoin, by comparison, is up about 2.5% during that same time frame.
If you bought into Aave when we recommended it, you’re up more than 12% (or even more if you dollar cost averaged into your position like we suggested). And there’s more (potentially) good news on the way.
Aave is launching its own stablecoin. It is NOT an algorithmic coin like Terra. And it will be backed by a basket of cryptocurrencies. If the stablecoin takes off, it could make Aave one of the dominant players in DeFi for years to come.