Analyst warns overheated leverage could trigger sharp price correction

Exchange leverage has entered an overheated phase, significantly outpacing the scale of stablecoin reserves, according to cryptocurrency analyst Crazyblockk. In a contribution to CryptoQuant, he noted that derivatives leverage is currently increasing faster than spot liquidity, with utilization levels reaching the top 5% historically and sitting well above the long-term average. This suggests the crypto market's recovery is dependent on borrowed funds rather than being supported by spot liquidity, he explained. Crazyblockk added that while retail investors are increasing high-leverage long positions as prices rise, market-making firms and institutions are aware of the fragile supply and demand structure. He predicted a high probability of a sharp price correction to unwind these high leverage levels.