JPMorgan says the current phase of deleveraging in cryptocurrencies may not last much longer

The current phase of deleveraging in cryptocurrencies is in an advanced state and may not last much longer, according to JPMorgan Chase Co.

Multiple companies failures shouldn't be surprising, given the huge price declines among tokens, and entities that used higher leverage in the past are the most vulnerable, according to strategists including Nikolaos Panigirtzoglou in a note Wednesday. The deleveraging process is a result of the three Arrows Capital's liquidity crunch.

The deleveraging cycle may not be very long, according to the strategists, because of the fact that entities with stronger balance sheets are stepping in to help contain contagion and that venture-capital funding is an important source of capital for the crypto ecosystem, which continued at a healthy pace in May and June. The space has endured a number of high-profile blowups and hiccups in recent months. The total market cap was down to around $930 billion on Thursday after having exceeded $3 trillion in November, according to pricing from CoinGecko. The collapse of the Terra Luna ecosystem in May, the Three Arrows Capital failure and frozen withdrawals at lenders like the Celsius Network are signs of woe cascading through the industry.

Read more: Three Arrows Set for Liquidation on the Cryptocurrency Hedge Fund

Some firms are looking at acquisitions and FTX is looking at some of these, as well as granting lines of credit. Fund raising efforts from venture capital have continued, like Kaiko's $53 million haul this week.

According to JPMorgan, a good portion of the troubles may be related to criptocurrency. The firm's net leverage metric shows that deleveraging is already well advanced, according to the strategists.

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