The Current Deleveraging Phase In Crypto May Not Last Much Long: JPMorgan
- JPMorgan analysts predict that the crypto market may soon hit its bottom following successive weeks of freefall in the crypto market.
JPMorgan analyst Nikolaos Penigirtzoglou has highlighted that massive price drops among crypto tokens are normal after the failures of several crypto firms. The analyst also said the most vulnerable crypto companies are those that used higher-than-usual leverage in the past.
The analyst also noted that the insolvency issues currently affecting Three Arrows Capital are proof of this deleveraging process.
A Near Crypto Bottom?
Bitcoin price has been on a free fall for the past few months. Mind you, over $2 trillion has evaporated from the crypto market since late last year. 2022 crypto market correction is unique in so many ways.
Among them, the correction has retracted back and eaten the profits of an entire bull market. In short, Bitcoin price has traded below 2017 ATH. Even more interesting, the bleeding seems not close to an end. Consequently, a huge number of crypto firms have laid off part of their employees.
However, JPMorgan analyst forecasts that this deleveraging crypto cycle may end soon.
“The current deleveraging cycle may not be very protracted,” the strategists said, given “the fact that crypto entities with the stronger balance sheets are currently stepping in to help contain contagion” and that venture-capital funding, “an important source of capital for the crypto ecosystem, continued at a healthy pace in May and June.”
The report notes that venture capital funding has remained steady in the last 60 days. Simply, the smart money is flowing into the crypto market during the bleeding. For instance, MicroStrategy recently purchased more Bitcoin units at around $20k.
Additionally, deep-pocketed crypto funds are saving proqjects with vibrant communities and bright future growth prospects.
FTX crypto exchange and Binance are among crypto firms that have been providing help for these distressed crypto firms. For instance, FTX recently offered credit lines to voyager digital. It is also looking to acquire some of these distressed small exchanges.
Nonetheless, FTX CEO’s opinion is in contrast to JPMorgan’s report. Bankman-fried recently said there are many small exchanges battling insolvency issues but have not been discovered or declared their issues publicly.
Hence, he predicts that the crypto market downturn may not end soon. His views are the opposite of the report from JPMorgan’s analysts about the crypto market conditions.
For now, it is a safe bet to assume Bitcoin will not go to zero as the Terra LUNA ecosystem did. Aside from institutional investors, the crypto market is backed by two countries, El Salvador and the Central African Republic that have adopted Bitcoin as legal tender.
There are notable institutional investors with digital assets on their balance sheets, including Tesla Inc. (NASDAQ: TSLA).
As such, liquidity is guaranteed for most of these crypto assets. Thereby assuring retail traders of market stability despite the increased volatility.