NEXO risks 50% drop due to regulatory pressure and investor concerns

Crypto lending agency Nexo is at danger of shedding half of the valuation of its native token by the top of 2022 as doubts about its potential insolvency develop out there.

Is Nexo too centralized?

For the unversed: Eight U.S. states filed a cease-and-desist order against Nexo on Sep. 26, alleging that the agency presents unregistered securities to buyers with out alerting them in regards to the dangers of the monetary merchandise.

Particularly, regulators in Kentucky accused Nexo of being bancrupt, noting that with out its namesake native token, NEXO, the agency’s “liabilities would exceed its belongings.” As of July 31, Nexo had 959,089,286 NEXO in its reserves — 95.9% of all tokens in existence.

“This can be a massive, massive, massive downside as a result of a really primary market evaluation demonstrates that Nexo can be unable to monetize a major chunk of those tokens,” noted Mike Burgersburg, an unbiased market analyst and creator of the Soiled Bubble Media Substack, including:

“On condition that reality, the true worth of the $NEXO tokens on Nexo’s steadiness sheet is probably going near $0.”

Comparisons with Celsius

Burgersburg additionally alleged that Nexo faces insolvency dangers as a result of it holds the overwhelming majority of NEXO’s token provide on its platform. He drew comparisons to Celsius Network, a now-defunct crypto lending agency that owned greater than 50% of its native token, CEL.

The highest 100 NEXO holders collectively personal 95.53% token provide. Supply: Etherscan

Celsius ended up holding over 90% of the entire CEL tokens in circulation after attracting deposits and collateral from clients. This made CEL extraordinarily illiquid and, thus, risky. In different phrases, CEL turned a deeply imperfect asset for patching Celsius’ troubling steadiness sheets.

“NEXO token is much more illiquid than the bankrupt Celsius Community’s CEL token,” warned Burgersburg, noting that the token’s common each day buying and selling quantity involves lower than 1% of its market capitalization.

Nevertheless, a Nexo spokesperson denied the allegations, clarifying that the information they supplied to Kentucky regulators was for one of many Nexo Group’s entities. 

“We will verify that on a consolidated foundation, NEXO tokens signify lower than 10% of the corporate’s whole belongings,” they informed Cointelegraph, including:

“That, in return, exceeds the corporate liabilities even when excluding the corporate’s internet place in NEXO tokens.”

As to why Nexo holds greater than 90% of the NEXO provide, the agency’s spokesperson cited the token’s economics and utility, saying that they create pure incentives for purchasers to maintain their tokens on the platform.

“Along with incomes larger rates of interest on their digital asset balances by holding NEXO tokens on the Nexo platform, purchasers can use NEXO tokens as collateral, earn curiosity on them and trade them immediately on the Nexo platform,” they defined, including:

“The identical is true for the tokenomics of corporations with comparable worth propositions reminiscent of FTT, BNB and CRO, held predominantly on FTX, Binance and, respectively.”

NEXO worth may get rocky

The concern, uncertainty and doubt surrounding the rumors of market volatility or stringent regulation towards crypto lending platforms may create detrimental funding sentiments towards NEXO. Sadly, the token’s technical setup suggests the identical.

Associated: Nexo acquires stake in US chartered bank

Notably, NEXO’s worth has been forming what seems to be an ascending triangle on its longer-timeframe charts since June 12. Ascending triangles are thought of bearish continuation patterns in a downtrend, which makes NEXO prone to excessive worth declines.

By the rule of technical evaluation, an ascending triangle resolves after the worth breaks under its decrease trendline and continues falling in the identical route till it reaches the extent that’s at size equal to the triangle’s most peak.

This setup is illustrated within the chart under.

NEXO/USD 3-day worth chart that includes ascending triangle breakdown setup. Supply: TradingView

Within the occasion that the sample confirms, the worth of NEXO may fall towards $0.47, down about 50% from its present worth.