Leverage Crisis

Definition ∞ A leverage crisis occurs when market participants are forced to rapidly unwind highly indebted positions, often due to significant price declines or increased margin calls. This forced selling can exacerbate market downturns, creating a cascading effect as more assets are liquidated to cover debts. In digital asset markets, excessive leverage can amplify volatility and lead to severe market contractions. It represents a significant systemic risk.
Context ∞ The potential for a leverage crisis is a recurring concern in volatile digital asset markets, particularly during periods of sharp price movements. News reports frequently analyze market data for signs of excessive leverage build-up, which can signal impending instability. Regulators and analysts monitor these conditions closely, as a widespread deleveraging event could significantly impact the entire crypto ecosystem.