crypto leverage

The prices of major crypto assets have continued to decline over the course of the last few days as the bear market extends, with the fallout of FTX continuing to sow discontent.

Some analysts had predicted that, like previous cycles, this bear market would last just one year before the bullish trend resumed.

Whilst there are many who believe that the worst of the bear market and the contagion is now over, there are many reasons to suspect that this is not the case.

A lot of leverage has been flushed out of the system by the FTX fallout

One of the main reasons for people coming to take the view that the worst of the bear market is now behind us is the fact that a lot of leverage has now been washed out of the system.

Whilst he was at the helm of FTX, SBF was one of the characters that decided to take on an extreme amount of leverage during the previous bull market, and even continued to take on more leverage throughout much of the bear as he acquired a string of companies that had already gone bankrupt.

Now, it seems that as a result of FTX, a range of firms such as BlockFi and Ikigai are now bankrupt, with further potential bankruptcies in companies such as DCG.

Interest rates continue to rise

Everything that happens in the cryptocurrency markets happens within a larger macroeconomic context, and over the course of the last few months the trend has been clear: the Federal Reserve is intent on continuing to raise interest rates in their mission to get inflation under control.

Currently, despite the fact that inflation has been falling somewhat, it is still significantly higher than interest rates at the moment.

When interest rates rise, asset prices suffer, and this trend looks to be something that will continue in the coming months as the Federal Reserve (and other central banks such as the Bank of the England and the European Central Bank) are also incentivised to dramatically raise interest rates in order to contain inflation from completely destroying their currencies.

For those who are bullish on the future of crypto markets, it is always better to take a long term perspective – it could well be the case that this bear market lasts for much longer than previous bear markets, and the fallout of FTX has a strong role to play in this.

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