A JPMorgan strategist has predicted that the worst element of the crypto winter for crypto assets, firms, and individual investors is close to an end. Deleveraging, a practice that has been the last resort for a number of troubled crypto firms, is predicted to have reached its terminus.
JPMorgan’s Panigirtzoglou admits deleveraging has been the last resort for most investors
“Indicators like our Net Leverage metric suggest that deleveraging is already well advanced,” said Nikolaos Panigirtzoglou, strategist and Managing Director at JPMorgan. Panigirtzoglou acknowledged the surge in leveraged positions during the bear market.
He pointed out that part of the reason for this prediction is the fact that other crypto firms with “stronger balance sheets” are making it a business of theirs to assist in making sure the virus that has been spread by the bear market is contained.
The analyst was obviously making reference to Bahamian cryptocurrency derivatives exchange FTX’s intervention in the BlockFi predicament. The exchange aided BlockFi with a $250M emergency credit line to help the firm “navigate the market from a position of strength.”
Secondly, the forecast was also influenced by the fact that venture capital funding has not been majorly affected by the current market situations. Despite the Crypto Winter, funding has totaled around $5 billion between May and June.
Exposure to high leverage
Deleveraging occurs when a firm decides to reduce its leveraged positions by rapidly selling off its assets to cover debts. A number of crypto entities have resorted to reducing their leveraged positions owing to the sudden crypto crash and the fall of Terra’s UST stablecoin.
Recently, Three Arrows Capital, a Singapore-based crypto hedge fund, defaulted on a $670 million loan given to the firm by Voyager Digital. The crypto hedge fund has been having it rough navigating the market due to current overwhelming conditions. This has exposed it to liquidations.
Firms like Celsius Network are among the several companies that have had exposure to high leverages which seem to be backfiring due to current market realities. The next direction of the crypto market in the coming weeks remains to be seen, but it’s likely to determine how things will turn out for investors and crypto entities.