Following a turbulent eight months for cryptocurrencies, J.P. Morgan is turning positive on the digital asset class and believes the deleveraging cycle is nearing its end.
«The current deleveraging cycle may not be very protracted,» said a note by J.P. Morgan strategists including Nikolaos Panigirtzoglou, citing indictors such as shrinking net leverage at crypto firms. According to the note, the liquidity crunch at firms like Three Arrows – the crypto hedge fund has reportedly been slapped with a court order to liquidate – is «a manifestation of this deleveraging process».
And one of the significant factors that helped ease pressure and contain contagion has been the liquidity support provided by other crypto firms with stronger balance sheets as well as venture capital firms in May and June which are «an important source of capital for the crypto ecosystem». The most notable example was crypto exchange FTX which has been extending credit to some firms and is reportedly even looking at acquisitions.
The crypto market has undergone constant turbulence in 2022 with the collapse of TerraUSD and sister token Luna, the potential bankruptcy of crypto lender Celsius Networks and recent troubles at Three Arrows. The overall crypto market has fallen under $900 billion, according to data from CoinMarketCap, down more than two-thirds from the peak of $2.9 trillion in November last year.
