Crypto Leverage Surges, $1B Liquidation Shakes Market

Crypto leverage surges back to highs

According to Galaxy Digital, crypto-collateralized loans jumped 27% in Q2, reaching $53.1 billion – the highest level since early 2022. This shows traders are once again willing to take big risks as the market heats up.

Bitcoin drop triggers $1B liquidation

Last week, Bitcoin fell from $124,000 to $118,000, wiping out more than $1 billion in leveraged positions. It was the largest liquidation of the month and highlighted how fragile the market can become when traders use excessive leverage.

Galaxy Digital flags warning signs

Analysts point out two major stress points:

   • USDC borrowing costs in OTC markets are rising, while on-chain lending rates remain flat → creating a liquidity gap.

   • On Aave, ETH borrowing rates surged past staking yields, causing many users to exit staking positions, pushing Ethereum’s withdrawal queue to a record 13 days.

Liquidity mismatch grows

Demand for dollars off-chain is outpacing liquidity available on-chain. This mismatch could trigger sharper volatility if global financial conditions tighten.

Market outlook: bullish but cautious

Despite these risks, institutional flows and ETF demand remain strong. Still, last week’s $1B liquidation serves as a reminder: leverage can fuel fast profits, but it can also wipe out markets just as quickly.

Disclaimer: This article is intended solely to provide information and market insights at the time of publication. We make no promises or guarantees regarding performance, returns, or the absolute accuracy of the data. All investment decisions are the sole responsibility of the reader.