A JPMorgan strategist has predicted that the worst element of the crypto winter for crypto assets, firms and retail investors is about to end. Deleveraging, a practice that has been a last resort for a number of troubled crypto firms, is expected to have come to an end.
JPMorgan’s Panigirtzoglou admits deleveraging was the last resort for most investors
“Indicators like our Net Leverage metric suggest deleveraging is well under way,” said Nikolaos Panigirtzoglou, strategist and managing director at JPMorgan. Panigirtzoglou confirmed the increase in deleverage 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 their mission to ensure the virus spread by the bear market is contained.
The analyst was apparently referring to the intervention of the Bahamian cryptocurrency derivatives exchange FTX in the BlockFi distress. The exchange backed BlockFi with a $250 million emergency credit line to help the company “navigate the market from a position of strength.”
On the other hand, the forecast was also influenced by the fact that the financing of venture capital was not significantly affected by the current market situation. Despite the crypto winter, funding totaled around $5 billion between May and June.
Exposure to high leverage
Deleveraging occurs when a company decides to reduce its leveraged positions by quickly selling its assets to cover debt. A number of crypto companies have moved to reduce their leveraged positions due 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 that Voyager Digital had extended to the firm. The crypto hedge fund is having a hard time navigating the market due to the overwhelming conditions at the moment. This has exposed it to liquidations.
Firms like Celsius Network are among several companies that have been exposed to large amounts of leverage that appear to be backfiring given current market conditions. The next direction of the crypto market in the coming weeks remains to be seen, but it will likely dictate how things will play out for investors and crypto companies.