IntoTheBlock’s head of research cautions that the market is showing signs of ‘being overheated,’ citing escalating leverage in both centralized and decentralized finance sectors.
With Bitcoin’s (BTC) price retracing from its peak and dipping below $69,000, analysts at IntoTheBlock warn of the market showing signs of “being overheated,” sparking worries of a potential correction.
In an X post on Mar. 15, Lucas Outumuro, head of research at IntoTheBlock, addressed the increasing leverage in both decentralized finance (defi) and centralized finance (cefi) markets, indicating a looming adjustment.
“Not only are meme tokens rocketing left to right, but the amount of leverage behind large cap assets has also quickly accelerated. This is evident in derivatives markets where borrow costs to go long have reached their highest since 2021.”
Lucas Outumuro
On centralized exchanges funding rates have “abnormally high” levels, Outumuro says, adding that even though exchange-traded fund (ETF) flows may continue carrying spot prices for the moment, the overly bullish positioning in derivatives “posts a warning sign for the market.”
Moreover, the surge in leverage extends beyond centralized exchanges to defi platforms. The aggregate debt issued through Aave v3 on Ethereum has more than doubled year-to-date, Outumuro noted.
The analyst warns of a potential “Great Unwinding” in the crypto market, anticipating a 20% correction “as the amount of leverage in the system gets reset.” While the exact timing of such a correction remains uncertain, the escalating borrow costs serve as a cautionary signal for crypto investors to exercise prudence in their trading strategies, IntoTheBlock’s head of research noted. As of press time, Bitcoin is trading at $67,819, according to CoinGecko data.
