The current phase of deleveraging in cryptocurrencies is at an advanced state and may not last, according to JPMorgan Chase & Co.

Due to  high price decline among tokens causing multiple crypto company failures, and companies with higher leverage in the past are the most vulnerable, strategists including Nikolaos Panigirtzoglou wrote in a note Wednesday. The liquidity crunch at hedge fund Three Arrows Capital “is a manifestation of this deleveraging process,” they said.

“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.”

In the recent months, the crypto space has seen a number of high-profile blowups and hiccups. After having surpassed $3 trillion in November, the total market capital was down to around $930 billion on Thursday, according to CoinGecko. Terra/Luna’s collapse ecosystem in May, the Three Arrows Capital failure and frozen withdrawals at lenders like Celsius Network are among the signs of woe sweeping through the industry.

But crypto exchange FTX, for instance, has granted lines of credit to some firms and is rumored to be considering acquisitions. week, data firm Kaiko’s fundraising has managed to raise $53 million. 

A good portion of the troubles may be over now, according to JPMorgan. Indicators like the firm’s net leverage metric “suggest that deleveraging is already well advanced,” the strategists said.


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