Definition ∞ Crypto market deleveraging describes a period where participants reduce their exposure to borrowed funds within the digital asset space. This process involves selling assets to repay loans, often triggered by declining asset prices or increased margin call risks. It leads to a contraction in overall market liquidity and trading activity. Deleveraging is a natural market cycle event.
Context ∞ News reports frequently cite crypto market deleveraging during periods of significant price corrections or market downturns. It indicates a reduction in speculative activity and an adjustment of risk profiles among investors and institutions. Understanding deleveraging is essential for interpreting market volatility and the broader financial health of the digital asset sector.
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