Deleveraging describes the process of reducing debt or financial leverage within an economic system or an individual entity. This typically involves paying down existing debts, selling assets to reduce liabilities, or reducing exposure to highly leveraged positions. It is a financial adjustment often undertaken to decrease risk or improve financial stability. Periods of deleveraging can have significant impacts on market liquidity and asset prices.
Context
In crypto markets, deleveraging frequently occurs during periods of significant price corrections or heightened market uncertainty. News reports often detail the forced liquidation of highly leveraged positions, which can exacerbate downward price movements. Understanding deleveraging is critical for interpreting market volatility and assessing the overall health and risk profile of the digital asset economy.
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