After repeated dips, the market sentiment in the cryptocurrency community is probably at its weakest compared to the rest of the year. While the Terra crash in May dealt a major blow to investor sentiment, large sales were seen across the markets as a result.
The decline in investor confidence in the markets resulted in both retail investors and miners selling their holdings. The situation has worsened with the recent liquidation of Three Arrows Capital (3AC). Nikolaos Panigirtzoglou, an analyst at US banking giant JP Morgan, said in a customer note published on Wednesday, that the liquidation of 3AC is an echo of the continued decline in the markets during the year.
Three Arrows Capital is just one of many examples showing that companies using higher leverage are most vulnerable to failing to thrive in the currently ongoing crypto winter. One of the most high-profile examples of a leveraged company with a lot of exposure to cryptocurrencies is undoubtedly MicroStrategy, which has more than $1 billion in unrealized losses in Bitcoin. The company has amassed billions of dollars in debt to add Bitcoin to its balance sheet.
On the other hand, the wave of leverage reduction, which has peaked in the cryptocurrency markets in recent days, has begun to decline, and this may be a sign that the decline in the markets is nearing its end.
“Indicators like our Net Leverage metric show that leverage reduction is already quite high and is bearish.”
Currently, crypto companies with strong balance sheets are said to step in to prevent a chain collapse and help the crypto community. This is a topic often raised after Sam Bankman-Fried, founder and CEO of giant cryptocurrency exchange FTX, made a loan to BlockFi. Last month, BlockFi reached an agreement with FTX for a $250 million revolving credit facility. Venture capital, which is an important source of capital for the cryptocurrency industry, continues to pour money into the industry. The JP Morgan analyst said capital flow continued at a healthy pace with around $5 billion in both May and June.