Major Investors Propose Celsius Recovery Plan, Unofficial Community Is Trying Short Squeeze Strategies

Leading investor in Celsius, BnkToTheFuture and its co-founder Simon Dixon, have offered to help the Celsius network by deploying “financial innovations” similar to those used in 2016 to save cryptocurrency exchange Bitfinex from liquidation.

While Dixon’s statement on Saturday, June 18 did not include specific details of the recovery plan provided to Celsius’s board of directors and CEO Alex Mashinsky, Dixon noted that it would be similar to the plan provided after Bitfinex was hacked in August 2016. Similarly, he claimed that Bitfinex resolved the issue within 9 months.

“I believe that traditional finance will not provide Celsius with a timely solution, as we have seen in the past with Mt. Gox, which remains unresolved after 10 years. I believe that this problem can only be solved through financial innovation. Solved, like we did with Bitfinex, and Bitfinex solved the problem in 9 months, and it worked out great for depositors.”

Dixon noted that, as a Celsius shareholder and lender, he is “ardently supporting Celsius in developing a recovery plan” due to the “short-term systemic impact on those who hold Bitcoin.”

"My position is to provide solutions because we have the experience, license and technology to do so," he said.

BnkToTheFuture is a global online investment platform that allows investors to invest in fintech companies, funds and other new alternative financial products. The platform claims to have more than 85,000 accredited investors. In June 2020, Celsius raised $20.46 million from 1,039 investors through an equity offering through the investment platform.

Bitfinex Solutions

Dixon’s Celsius initiative was inspired by his firm’s solution in August 2016, when Bitfinex announced that it had lost approximately 120,000 bitcoins (BTC) due to a cybersecurity breach, resulting in a loss of approximately $72 million in customer funds.

Instead of a liquidation process, Bitfinex came up with an innovative recovery plan that included a "repayment promise" to customers in the form of BFX tokens, repaying customers for the value of their funds lost in the hack.

These tokens can be traded on the open market, or can be held at a later date, repaying $1 per token in the future, and effectively allowing customers to speculate on the recovery of the company.

Later this month, BnkToTheFuture partnered with Bitfinex to add new elements to the solution, allowing clients to convert their BFX tokens into equity in the company.

About seven months later, BnkToTheFuture reports that the scheme has been working, with victims recovering between 75% and 100% of their funds through every possible measure.

“Bitfinex needed a recovery plan from being hacked in 2016, and the company I co-founded, BnkToTheFuture.com, supported them and executed a recovery involving security tokens, debt, and equity, and assumed responsibility for investors. High risk offers very high reward."

Dixon did not confirm whether his recovery plan would use tokens in the same way, saying only that it would use a similar innovative approach.

A remake of Gamestop's short-squeeze strategy is brewing

However, there is also an unofficial community-led recovery plan that seems to be gaining a lot of traction on Twitter under the hashtag #CELShortSqueeze.

The campaign attempted to force short sellers of Celsius tokens to cover their positions by deliberately driving up the price of CEL tokens by buying and withdrawing CEL tokens in large quantities from various exchanges.

Shorting is an investment strategy in which investors borrow shares and sell them immediately with the intention of buying them back later at a lower price and making a profit. It allows investors to profit from a decline in a stock or asset.

When the value of the shorted asset rises instead of falling, short sellers are forced to buy back the shares they originally sold to avoid mounting losses. However, repurchasing shares when the stock price is rising can cause the stock price to rise further, crowding out short sellers even further.

Users on Reddit's r/wallstreetbets subreddit initiated the same strategy, boosting Gamestop's stock price in January 2021, when the U.S. video game retailer hit a high of nearly $500 a share, around 25 times the valuation at the beginning of the month.

Celsius made headlines earlier this month when it said it was suspending withdrawals due to "extreme market conditions".

The suspension of withdrawals has left customers unable to get their funds back, and many fear that funds locked on the platform may never see the light of day if the platform goes bankrupt.

On June 20, Celsius released a statement to its community stating that its goal remains stable liquidity and operations.

“It has been a week since we suspended withdrawals, swaps, and transfers. We want our community to know that our goal remains to stabilize our liquidity and operations. This process will take time.”

Celsius said it aimed to maintain an open dialogue with regulators and officials and would continue to find a solution. In the meantime, the platform will suspend its Twitter Spaces and AMAs.

At the time of writing, Celsius (CEL) is trading at $0.636, down 92% from its all-time high.