Strategists at JP Morgan are saying that the current deleveraging cycle for crypto may not be protracted, given that the likes of Sam Bankman-Fried are stepping in to support troubled companies. Also, they note that venture capital is continuing to invest in a healthy way in the crypto sector.
The crypto market is currently looking for a bottom and hasn’t shown too many signs of having found it yet. The contagion caused by lack of liquidity, and overleveraged crypto lending companies trying desperately to offer higher yields in order to keep their customers, has spread, and has now led to the liquidation of hedge fund Three Arrows Capital, and other crypto companies could follow suit.
However, according to strategists at JP Morgan Chase & Co. the deleveraging process may not last too much longer. Even though the strategists are predicting that potentially multiple companies could fail, there are reasons why this may not go on too long.
In an article published by Bloomberg, the following was attributed to the JP Morgan strategists:
“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.”
At time of writing, bitcoin has once again fallen under the strong $20,000 support. It is currently at around $19,000, which is another good level of support. Closing below this price on a weekly candle would certainly not be a good omen, to say nothing about even longer time frames.
It could certainly be argued that a thorough deleveraging is always the best way to clear out the weak and the risk-prone hands. Once this has been done then the crypto sector can rise again from the ashes with only the strongest and most technically competent projects remaining.
If JP Morgan strategists are right, then we could see some more failures and potentially another dip in price for the entire crypto sector. Once this is achieved, look for a strong rebound as crypto takes advantage of a potential Fed pivot at some time in the autumn.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.