- Crypto market leverage has returned to levels last seen during earlier bull runs.
- Bitcoin’s recent price drop triggered over $1 billion in crypto derivatives liquidations.
- DeFi lending demand pushed crypto-collateralized loans up 27% last quarter to $53.1 billion.
- Ethereum saw a record $3.8 billion queued for unstaking, extending wait times and adding market pressure.
- Rising borrowing costs and liquidity mismatches are causing stress in both on-chain and off-chain dollar markets.
Leverage in cryptocurrency markets has increased sharply, reaching levels not seen since early 2022, according to Galaxy Research. This comes as new data shows crypto-collateralized loans climbed 27% in the last quarter to $53.1 billion, fueled by strong interest in decentralized finance (DeFi) lending and renewed appetite for risk.
Last week’s market turbulence began when Bitcoin fell from $124,000 to as low as $118,000, resulting in more than $1 billion of liquidations in crypto derivative markets. Analysts described this event as a sign of profit-taking, not a broader reversal, but it emphasized how quickly leveraged positions can unravel.
Galaxy Research reported that in July, widespread withdrawals from Aave—a DeFi lending platform—pushed Ethereum borrowing rates above what users could earn by staking ETH. This disrupted the common practice of “looping,” where staked ETH is used as collateral for more loans. As a result, users rushed to exit staking positions, sending Ethereum’s Beacon Chain exit queue to a record 13 days.
Borrowing costs for USDC, a stablecoin pegged to the U.S. dollar, have also increased in over-the-counter markets since July, while on-chain lending rates remain steady. The gap between these costs is now the largest since late 2024, according to Galaxy Research, signaling that off-chain demand for dollars is outstripping available on-chain liquidity.
Despite strong institutional demand and steady inflows into crypto exchange-traded funds, analysts are cautious about potential risks. Galaxy Research noted that growing loan volumes, concentrated lending power, DeFi liquidity concerns, and gaps between on-chain and off-chain dollar markets are all adding stress to the system. The $1 billion in liquidations last Thursday served as a reminder of the fragility of markets when leverage builds up.
Market data showed Bitcoin trading at $118,061, up slightly by 0.44%. Ethereum’s price rose by 2.13% to $4,524, with a record $3.8 billion in Ether awaiting unstaking. Gold was steady near $3,333 amid shifting expectations for U.S. interest rate policy.
In related news, stablecoin growth has made crypto on-ramp companies more attractive for mergers and acquisitions, according to VanEck. Companies like Circle and Stripe are building their own blockchains, and Gemini has selected major investment banks as bookrunners for its planned IPO. For further details, see Galaxy Research’s State of Crypto Leverage report.
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