NEXO price drops 40% in three days on contagion fears from ‘insolvent’ crypto fund

The worth of Nexo (NEXO) continued to fall on June 15 as crypto lending companies proceed to be shaken by the falling cryptocurrency market.

In the meantime, Nexo has denied rumors of publicity to Three Arrows Capital (3AC), a Dubai-based crypto fund dealing with insolvency dangers.

NEXO value suffers on DeFi contagion fears 

NEXO, which serves as a safety token at a cryptocurrency lending platform of the identical identify, fell practically 25% to $0.61 a unit, its lowest value studying since January 2021.

The huge intraday decline got here as part of a broader draw back transfer this week, which stretched NEXO’s losses to 40%.

NEXO/USDT weekly value chart. Supply: TradingView

An ongoing contagion in the crypto lending sector contributed to NEXO’s underperformance.

Traders fear that most decentralized finance (DeFi)/centralized finance (CeFi) firms, which offer high yields to clients on their cryptocurrency deposits, will default on their debts due to the wipeout of nearly $1.5 trillion from the crypto market in 2022. 

The concerns continue to mount after the collapse of Terra (LUNA) — now known as Luna Classic (LUNC) — a $40 billion algorithmic stablecoin project, in May.

A month later, Celsius Network, which offers clients up to 18% yields, paused withdrawals due to “extreme market conditions.” Its clients have pulled almost half of their assets out of the platform since October 2021, thus leaving it about $12 billion as of May 17 to meet debt obligations.

In the meantime, 3AC, a crypto hedge fund, has witnessed liquidations of not less than $400 million. As well as, on-chain knowledge reveals that the agency might also have a minimal debt of $183 million in opposition to a collateral place of $235 million (derived in Staked Ether).

The fund may switch the financial dangers to its lenders if it turns into bancrupt.

“The lenders will bear the PnL [profit and loss] distinction between how a lot they’re owed versus what they get in liquidating their collateral,” noted Degentrading, a market commentator recognized for highlighting the Celsius Community’s liquidation points.

He added:

“Meaning defaults will trigger SIGNIFICANT EQUITY erosion […] Not all lenders are made equal. Celsius is the worst. It has gone below. Nexo, I do not know. BlockFi is fairly unhealthy as nicely.”

Nevertheless, Nexo says it presently has no publicity to 3AC regardless of partnering with the fund over a nonfungible token (NFT) lending product in December 2021. The firm asserts that the partnership with 3AC did not take off.

What’s subsequent for the NEXO token?

Nexo has 100% liquidity to fulfill its $4.96 billion price of debt obligations, based on U.S.-based audit agency Armanino. That raises the agency’s potential to keep away from a liquidity disaster within the occasion of a rising withdrawal price, not like Celsius.

Nonetheless, NEXO value treads forward below persistent bearish dangers, primarily because of the crypto market’s dire state in a high-interest price setting. The NEXO/USD pair now eyes the $0.58–$0.69 vary as its interim assist as a consequence of its historic significance from December 2020 to January 2021.

NEXO/USD weekly value chart. Supply: TradingView

A rebound from the $0.58–$0.69 vary may have NEXO bulls eye $0.883 as their interim upside goal. This degree was instrumental as assist in the course of the early-Could value crash; it now coincides with the 0.786 Fibonacci retracement graph drawn from the $0.11-swing low to the $3.71-swing excessive.

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Conversely, a decline beneath the $0.58-$0.69 vary may have NEXO watch December 2020’s assist degree close to $0.43, down round 35% from June 15’s value.

The views and opinions expressed listed here are solely these of the creator and don’t essentially replicate the views of Each funding and buying and selling transfer includes danger, you must conduct your individual analysis when making a call.