The price of Nexo (NEXO) continued to fall on June 15 as Nexo denied rumors that it was being exposed to Three Arrows Capital (3AC), a Dubai-based crypto fund facing insolvency risks.

NEXO price suffers due to DeFi contagion fears

- Advertisement -

NEXO, which serves as a security token on the cryptocurrency lending platform of the same name, fell nearly 25% to $0.61 per unit, the lowest price since January 2021.

- Advertisement -

The massive intraday decline was part of a broader move lower this week that saw NEXO’s losses rise to 40%.

NEXO/USDT weekly price chart. Source: Trading View
- Advertisement -

The ongoing contagion in the crypto lending sector has contributed to NEXO’s diminishing returns.

Traders fear that most DeFi/CeFi firms that offer clients high returns on their crypto deposits will default on their debts due to the destruction of nearly $1.5 trillion from the crypto market in 2022.

Fears continue to rise following the collapse of Terra, a $40 billion algorithmic stablecoin project, in May.

A month later, Celsius Network, which offers customers returns of up to 18%, suspended withdrawals due to “extreme market conditions”. Its clients have withdrawn nearly half of their assets from the platform since October 2021, leaving it with about $12 billion left to pay down debt as of May 17.

Meanwhile, cryptocurrency hedge fund 3AC witnessed at least $400 million in liquidation. In addition, data on the network shows that the firm could also have a $183 million minimum debt against a $235 million collateralized position (received in Ether staking).

The Fund may transfer economic risks to its creditors if it becomes insolvent.

“Lenders will bear the PnL [profit and loss] the difference between the amount they owe and what they receive when their bond is liquidated.” noted Degentrading, a market commentator known for reporting on the liquidation of the Celsius Network.

He added:

“This means that defaults will cause SIGNIFICANT erosion of EQUITY […] Not all lenders are equal. Celsius is the worst. He went under water. Nexo, I don’t know. BlockFi is pretty bad too.”

However, Nexo says it is not currently affiliated with 3AC, despite partnering with the fund on a non-fungible token (NFT) lending product in December 2021. The firm claims that the partnership with 3AC was not successful.

What’s next for the NEXO token?

Nexo has 100% liquidity to satisfy its $4.96 billion in debtThis is reported by the American auditing company Armanino. This increases the firm’s potential to avoid a liquidity crunch in the event of an increase in the withdrawal rate, unlike Celsius.

However, the price of NEXO is outpacing ongoing bearish risks, primarily due to the dire state of the crypto market amid high interest rates. The NEXO/USD pair is now considering the $0.58 to $0.69 range as temporary support due to its historical significance from December 2020 to January 2021.

Weekly price chart NEXO/USD. Source: Trading View

A bounce off the $0.58-$0.69 range could have NEXO bulls looking to $0.883 as an interim upside target. This level played an important role as support during the price collapse in early May; it now lines up with a 0.786 Fibonacci retracement chart plotted from a $0.11 swing low to a $3.71 swing high.

bottom inside? Raul Pal, Scaramucci gain weight, Novogratz and Hayes weigh in

Conversely, a drop below the $0.58-$0.69 range could cause NEXO to keep an eye on the December 2020 support level around $0.43, about 35% below today’s price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect those of Cryptooshala.com. Every investment and trading step involves risk, you should do your own research when making a decision.