JP Morgan has said that the deleveraging which is taking place in the crypto market likely won’t last much longer.
After the Terra Implosion took place in early may the entire crypto market has slowly started to unravel. Many firms such as Celsius, voyager, and 3AC, who were way over-leveraged, began getting exposed due to margin calls and lack of liquidity. Thankfully there are indicators showing that this deleveraging is getting close to an end.
Strategists from JPMorgan said, “indicators like our Net Leverage metric based on CME futures suggest that this deleveraging is already well advanced.” This is a good sign, however, it doesn’t mean that the market can’t go lower even after the leverage and dumb money is washed out.
Based on most technical and fundamental factors, the economy looks to be in bad shape, GDP q1 was -1.6% which was lower than most analysts expected. Despite some delusional politicians saying how strong the economy is, it looks to be in a negative feedback loop to the downside which aligns with our previous expectations. We will likely get a Q2 negative GDP number which when announced will officially signal the U.S. economy is in recession.
Worse than a recession alone is stagflation, which is about the worst position to be in economically because you have high inflation coupled with a contracting economy. Stagflation results in the fed being unable to stimulate the economy as they have in past recessions because they are forced to prioritize slowing inflation.
Crypto has never been through an economic recession so there is no guarantee on how the market will react, there are some bulls who say crypto could theoretically thrive while equities are down, however that is an unlikely hope as of now.
We only know how crypto has historically reacted to quantitative tightening and that hasn’t been good, so it is likely that we will still see more downside while the Fed keeps tightening to reduce inflation and restore price stability in the economy.
The general trend in both the markets and the economy is very doom and gloom, the majority don’t like this. We on the other hand are ecstatic in times like this because these are the times when opportunity presents itself, so stay positive and stay on the hunt.