JPMorgan Warns Adding Leverage into Bitcoin Markets to Cause Severe Deleveraging During Correction
The American investment bank JPMorgan warns against introducing additional leverage into the Bitcoin markets, arguing that the potential correction would yield a painful deleveraging.
The statement by Jamie Dimon-led bank coincides with a period that MicroStrategy confirmed amassing 205,000 Bitcoin in its corporate treasury, amounting to $14 billion at present market prices. The amount edges closer to match the $15 billion Bitcoin that Larry Fink-led BlackRock acquired to back the iShares Bitcoin Trust (IBIT).
JPMorgan Analysts Warns Against Aggressive Bitcoin Buys
JP Morgan analysts revealed in a Thursday, March 14 update concerns in the manner that the Michael Saylor-chaired company is acquiring Bitcoin. The analysts indicated that the debt-funded bitcoin acquisitions recently executed by MicroStrategy (MSTR) are adding leverage to the present crypto rally. They project that the leveraged Bitcoin buys raise the risk of painful experiences in the event of a downturn in the future.
The criticism by JPMorgan analysts comes at a time when the laser-eyed Bitcoiners are hailing MicroStrategy co-founder Michael Saylor for the aggressive strategy. The business intelligence firm’s chair informed Yahoo Finance on Tuesday, March 12, that Bitcoin is the best investment asset, indicating its additions are the endgame for winners.
The warning issued by Nikolaos Panirgirtzoglou-led analysts team is attributed to the use of Bitcoin as collateral in borrowing funds to acquire the digital asset. Saylor and MicroStrategy have mastered the trade with the Nasdaq-listed company under the MSTR ticker, utilizing its Bitcoin treasury to source funds for the addition of the token.
US Conservative Handling of Leveraged Trading
The recent round of leveraged Bitcoin buys occurred earlier in the week when MicroStrategy offered $500M convertible senior notes with a 2031 expiry to acquire more Bitcoin. The offer by MicroStrategy is far from the record-high Leverage amounts witnessed in the market.
Leverage involves the capability to borrow funds and use such to amplify investment returns. A trader could deploy a 5X leverage in opening a $5000 Bitcoin futures contract using $1000 worth of Bitcoin within the exchange account.
Market observers admit that leverage optimizes profits and could also exacerbate losses. Such a possibility explains why leverage trading often attracts regulatory restrictions, particularly when utilizing high ratios.
The US mandates a conservative restriction that only permits crypto trading entities, including Kraken and Coinbase, to limit their leverage to 5X and 10X, respectively. Such differs from other countries that allow higher leverage ratios.
Leverage in Bitcoin Markets Yet to Test Alarming Levels
JPMorgan analysts issued the warning amid the open interest in Bitcoin futures hitting an all-time high at $34 billion. The rally signals a surge in optimism regarding Bitcoin’s price rally.
CryptoQuant considers the leverage utilized within the Bitcoin market as moderately 0.20 against the 0.40 peak realized in October 2022. This implies that the leverage has yet to become a high-risk spread liquidation that could prompt a market plunge.
A scrutiny of the leverage within the Bitcoin markets shows that the present open interest relative to Bitcoin terms only hit 496, as per CoinGlass data. The amount is a miniature compared to the 667,550 Bitcoin recorded in October 2022.
The above assessment offers evidence-backed reasons to downplay the warning issued by JPMorgan analysts about over-leveraged Bitcoin buys. The present leverage has yet to test alarming levels likely to cause severe deleveraging during an imminent correction.
MicroStrategy Aggressive Strategy in Leveraged Bitcoin Buys
The call against leverage Bitcoin buys will hardly slow the aggressive strategy deployed by MicroStrategy, with the firm recently adding 12,000 to the holdings.
The company’s chair informed Yahoo Finance that MicroStrategy will continue adding Bitcoins. Saylor ruled out the possibility of the company utilizing its Bitcoin holdings to refund money to the shareholders and make acquisitions.
Saylor considers buying and holding Bitcoin to be the best utilization of capital. Bitcoin facilitates capital preservation as the apex property available for the human race.
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