JPMorgan Chase: With the End of Cryptocurrency Deleveraging, the Encryption Industry Will Usher in the Dawn

A historic deleveraging in the cryptocurrency market may be coming to an end, according to an analyst at JPMorgan, which could mark the end of the worst phase of the bear market.

Nikolaos Panigirtzoglou, an analyst at JPMorgan Chase & Co., highlighted his optimism for the crypto industry in a Wednesday note, as corporate willingness to bail out businesses grew and the pace of venture capital funding at a healthy pace in May and June. The main indicators supporting this assessment, he said, are:

"Metrics like net leverage ratios suggest that the deleveraging has gone very deep."

The deleveraging of major crypto companies began in May of this year when the Terra ecosystem collapsed, costing tens of billions of dollars. In these companies, their assets were either voluntarily and hastily sold or liquidated. Since then, cryptocurrency lenders BlockFi and Celsius, as well as investment firm Three Arrows Capital, have had their own problems.

Panigirtzoglou added that the degree to which some crypto companies are deleveraging could be severe, “suggesting that the volatility of this year’s crypto market decline will continue to have an impact.”

However, Panigirtzoglou believes that deleveraging may be coming to an end as crypto entities are stepping in to bail out struggling companies. He said:

“Indeed, crypto entities with stronger balance sheets are now stepping in to help stem contagion.”

At a time of disaster for several blockchain companies, including Three Arrows Capital and Celsius, Sam Bankman-Fried’s FTX exchange will reportedly expand its reach across the industry. As Cointelegraph reported on June 30, there are rumors that FTX intends to acquire the BlockFi cryptocurrency lending platform for $25 million. However, BlockFi CEO Zac Prince denied the rumor in a June 30 tweet.

Panigirtzoglou also believes that the healthy pace of venture capital investment in the crypto space is also a good sign. In May and June of this year, crypto companies received about $5 billion in venture capital funding, according to JPMorgan estimates. Funding metric tracker Dove metrics estimated using data from Airtable that cryptocurrency funding was even higher at $8.6 billion over the same period.

This funding total is down $2.2 billion from March and April, but up $3.4 billion from May and June 2021.

Investors have already endured what Glassnode believes is the worst bear market in the history of cryptocurrency trading. JPMorgan's latest forecast should bring some fresh air to cryptocurrency investors in 2022. Since November 2021, when the total cryptocurrency market capitalization topped $3 trillion, that number has dropped to $934 billion, below $1 trillion, according to CoinGecko.