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Are you a cryptocurrency enthusiast looking to navigate the volatile market with caution? IntoTheBlock’s head of research has a warning for you. The market is showing signs of being overheated, with escalating leverage in both centralized and decentralized finance sectors.
Bitcoin’s price has retraced from its peak and dipped below $69,000, prompting analysts at IntoTheBlock to issue a warning about the market’s overheated state. This surge in leverage in DeFi and CeFi markets indicates a potential correction on the horizon.
In a recent post on Mar. 15, Lucas Outumuro, head of research at IntoTheBlock, highlighted the increasing leverage in both decentralized finance (DeFi) and centralized finance (CeFi) markets, signaling a looming adjustment. He pointed out that meme tokens are skyrocketing, along with a rapid acceleration in leverage behind large-cap assets, particularly in derivatives markets.
On centralized exchanges, funding rates are at abnormally high levels, according to Outumuro. Even though exchange-traded fund (ETF) flows may continue to support spot prices for now, the overly bullish positioning in derivatives serves as a warning sign for the market.
Furthermore, the surge in leverage is not limited to centralized exchanges but extends to DeFi platforms as well. Outumuro noted that the aggregate debt issued through Aave v3 on Ethereum has more than doubled year-to-date.
Outumuro warns of a potential “Great Unwinding” in the crypto market, predicting a 20% correction as the system’s leverage gets reset. While the exact timing of this correction remains uncertain, the escalating borrow costs should serve as a cautionary signal for crypto investors to be prudent in their trading strategies.
As of press time, Bitcoin is trading at $67,819, according to CoinGecko data. Stay informed and stay cautious in the ever-changing world of cryptocurrency investing.
