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Home Blog Crypto lending platforms are in turmoil and facing liquidation risks as Bitcoin price is holding abo
Article by Yunis
6 July 2022 (Updated 2 December 2022)

Crypto lending platforms are in turmoil and facing liquidation risks as Bitcoin price is holding above the $20,000.

According to news, 25 crypto exchanges are wiped because of the enormous drop in Bitcoin prices. The biggest concern is the leading major crypto platforms' fate. Fear of liquidation risk is still driving the market.
Liquidation threat in crypto markets logo
  • Crypto Lenders in Turmoil as Bitcoin struggles to hold above the $20,000
  • Celsius Network dropped liquidiation level to $5,000 level.
  • FTX CEO Sam Bankman-Fried thinks the worst is behind.
  • CoinLoan steps in to prevent a further panic sale.

The first week of July started with positive news in general. The giant crypto lending and saving platform Celsius’ insolvency issues were the biggest threat to crypto markets, but the latest news showed that the platform’s liquidation price is down to the $5,000 level in Bitcoin price. Celsius Network announced that they were seeking professional and legal help from 3rd party consultation companies and reorganized the board of directors to try to manage the situation. Celsius cut one-third of its employees last week.

While some analysts believe that the market still has much further down to go for Bitcoin prices, some analysts claim that the bottom is in. Bitcoin generally stayed above the $19000 level this week. FTX CEO Sam Bankman-Fried stated that we left the worst of the liquidity crunch behind according to Reuters.

Bankman-Fried also stated that some smaller crypto exchanges may still fail. FTX played a key role in saving BlockFi in June by giving a revolving credit of $250 Million and gained the right to purchase the platform if certain conditions are met.

CoinLoan also took steps to prevent another fear sell-off and lowered withdrawal limits from $500,000 to 5,000$ per account. Accounts with more significant funds are not able to withdraw huge amounts of crypto from the crypto saving and lending platform CoinLoan. The company stated that the company is in good health, but the decision was made to prevent a panic sale because of a high volume of withdrawals.

What is the liquidation price?

Liquidation price is the price where the margin is equal to zero. You can use leverage and open a position bigger than your original amount by borrowing funds from the platform. The ratio of the equity you have to the margin you used is called margin level and showed in percentage. The bigger the margin is, the bigger risk you are exposed to. When you over-leverage and the price goes in an unexpected direction, even a small change can affect you and cause you to lose your original funds.

Crypto saving and lending platforms are like traditional banks. They generate revenue by collecting funds from customer and lending it to borrowers. The platforms share revenues with their customers and offer very high competitive rates compared to traditional banks. During the post-pandemic crypto bull, many platforms were able to make a profit because of an enormous inflow into markets. They enjoyed the price increases and treated their customers with generous bonuses and rewards.

Platforms are like individuals, and they opened over-leveraged positions and stayed under-collateralized. Luna crash in May and the Fed’s hawkish rate increases caused a major outflow from the crypto markets. The bear market has shown the king is naked and caused platforms with unhealthy balance sheets to be wiped. According to Finbold news, 25 cryptocurrency exchange platforms are wiped in 30 days.

Trusting your money to the platforms

In such turbulent times, it is crucial to trust a platform. Cryptocurrencies allow holders to create their own wallets without needing a third party. Failing platform news reminded us of the famous phrase; not your keys, not your Bitcoin. If you still want to hold some funds on an exchange, we recommend you to read our article proof of reserves to learn more about how healthy platforms are.

Important Message Definda does not provide any financial advice. All information is provided for research purposes only. DeFi is a rapidly evolving industry. Most businesses in the sector are very young and it is possible that some of them could go out of business in the future. Such an event could result in the loss of your investment. You should do your own research or consult a financial advisor before investing any money. Please read and satisfy yourself with our terms before continuing to use our website. We offer a free impartial comparison service of savings, loans and other DeFi products. We may receive a small commission from some of the companies listed, but this never influences our rankings. If you spot any errors in the information listed then please contact us at info@definda.com.

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