Can I use iCloud storage for time capsule back up?

No, according to Back up your Mac with Time Machine - Apple Support:

Connect an external storage device

Connect one of the following external storage devices, sold separately. Learn more about backup disks that you can use with Time Machine.

• External drive connected to your Mac, such as a USB or Thunderbolt drive
• Network-attached storage (NAS) device that supports Time Machine over SMB
• Mac shared as a Time Machine backup destination
• AirPort Time Capsule, or external drive connected to an AirPort Time capsule or AirPort Extreme Base Station (802.11ac)

The answer is no. Even if it were possible......(it's not).....backups would take forever this way.

The simplest, fastest, and most reliable way to back up is connect a USB hard drive directly to your iMac.

Look for a hard drive this is at least twice the size of the hard drive on your Mac. For example, if the hard drive on your iMac is 1 TB, then you would want at least a 2 TB backup drive.