Massively deleveraged market sees big bounce; Elon Musk & Michael Saylor making Bitcoin "greener" bodes well for ESG narrative and institutional adoption

We’re writing a bit more often as of late given the recent market volatility. In our blast yesterday, we highlighted how forced liquidations may be coming to an end and asked if we could see a short-term bounce on seller exhaustion – today that’s what we got. Crypto bounced massively with Bitcoin and Ethereum up ~15% and ~25%, respectively, while many “alts” rallied even harder.

Why do we think we bounced? Two reasons:

  • Supply: We think investors may be nearly done unwinding cash and carry trades. Folks who were betting on basis (premium of futures over spot price) to contract ahead of the sell-off were short futures and long spot. Closing this trade over the recent week has meant selling spot and closing futures positions. If folks are nearly done unwinding, it may have helped lower spot pressure and helped stop the bleeding on futures liquidations.
  • Demand: We are hearing from trading desks that institutions are stepping in and buying higher quality blue chip crypto assets at these levels. We also think retail traders are entering the market and some are rebuilding leverage positions.

But how sustainable is this move and how much room is there for leverage to build again?

There’s a lot of ways to estimate leverage, none are perfect, but one metric usin...

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