While the crypto markets continue to be volatile, there’s still a possible chance of deleveraging needed to happen. However, JPMorgan Chase & Co. believe the stated to be well advanced, indicating potential stability in sight.
The Crypto slump which has now lasted for more than 6 months, continues to vaporize investors’ confidence in the market. The last time investors were optimistic was when the news of the crypto market cap crossing $3 trillion in value made headlines, since then a consecutive influx of bad news continues to shape the concerning attitude towards crypto.
In November 2021, Bitcoin recorded its all-time high of $68,789, while having a market cap of over a trillion dollars.
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Today, the coin is trading at $19,256, down by more than 70% from its record high. Ethereum, the second most valuable crypto, has shown an even worse performance, with its current price being equal to a little over 20% of its all-time high.
A Series of Trouble for the Crypto Industry
Companies that employed higher leverage to crypto, such as Three Arrows Capital are now most vulnerable when it comes to making it through these times for crypto.
Another example of the same is MicroStrategy raising billions of dollars in debt to strengthen its already substantial exposure to crypto.
The company currently holds close to $4 billion worth of Bitcoins, making it take the first position when we consider public companies with bitcoin in their portfolio. However, the company has made an unrealised loss of more than a billion dollars with its bitcoin investment strategy.
Crypto miners have also contributed significantly to the downfall of crypto. Where they had taken a serious sum of money in debt, mostly for the expansion of their operation, with their Bitcoin holdings as collateral. But the recent crisis has put their leverage in jeopardy. As a result, many miners are left with no option but to sell their holdings, supplementing the sell-off.
Retail investors, too, have played their part in catalyzing the deleveraging. Where many were forced to scale back their margin calls, amidst the current volatility.
Would the Crypto Market Recover Soon?
Although the current crypto situation does not look pretty, Nikolaos Panigirtzoglou, MD of Global Strategy at JPMorgan Chase & Co., said that “Indicators like our Net Leverage metric suggest that deleveraging is already well advanced.”
“The fact that crypto entities with the stronger balance sheets are currently stepping in to help contain contagion” he added. This can be a reference to Sam Bankman-Fried’s companies saving firms like BlockFi and Voyager Digital, by lending close to 750 million dollars through a variety of mediums.
Another reason for the faint optimism could be the healthy pace maintained by the venture capital sector, which comes out to be an important source of funding for the crypto sector. In the months of May and June, the industry has maintained a consistent pace of about $5 billion.
While these indications may shed some positive light, it’s no reason to expect a quick recovery. The firm shares that highly leveraged companies with lower capital are the most vulnerable. While the ones with a balanced portfolio are more likely to survive.
Many analysts expect long-term momentum trends to follow a negative trend for a few months before a recovery can be expected. However, the firm believes a significant portion of trouble is behind crypto now.
Is This the Time to Buy Altcoins?
Bitcoin has dragged major altcoins along with itself. While the coin itself is down by 70%, most popular altcoins have corrected by more than 80%.
Holding altcoins in one’s portfolio has attracted significant attention last year, and given the current market situation and statements by major banks hinting at a recovery, now is a good time to buy altcoins and add them to your portfolio.
Among the plethora of altcoins available in the market, there are a few that are worth tracking. These include Solana, Dogecoin, Shiba Inu, Aave, and Cardano.
Your capital is at risk.
If, as an investor, your risk appetite allows you to include altcoins in your portfolio, now would be a great time to invest in altcoins. However, crypto markets remain volatile, and any investment decision must be made after thorough research.
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