Leverage in crypto markets is nearly back to bull-market levels, evidenced by the 27% rise in crypto-collateralized loans last quarter. However, a recent drop in Bitcoin's price led to over $1 billion in liquidations across the derivatives market, signaling market fragility. Analysts from Galaxy Digital note stress points, including high USDC borrowing costs and a liquidity mismatch between on-chain and off-chain dollar markets. With a significant amount of Ether queued for unstaking, profit-taking pressures may increase despite rising ETF demand. As borrowing rates for USDC continue climbing even as on-chain rates remain stable, a widening of this spread could exacerbate volatility if market conditions tighten further. Despite ballooning loan volumes and tightening liquidity, institutional demand and ETF inflows suggest a bullish outlook, though the current environment highlights increasing risk and the potential for market disruptions.

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