A leverage reset describes a market event where excessive leveraged positions in trading are liquidated, leading to a rapid reduction in outstanding borrowed capital. This often occurs during periods of heightened volatility, as price movements trigger margin calls and forced selling. A leverage reset can stabilize markets by removing speculative excess.
Context
Leverage resets are a recurring phenomenon in highly speculative digital asset markets, particularly in futures and perpetual swap trading. News often reports on these events, noting their impact on market liquidity and short-term price direction. Observers monitor leverage ratios as an indicator of potential market instability and the likelihood of such a reset.
Federal Reserve Chair Jerome Powell's speech and FOMC minutes are creating significant crypto market volatility, triggering a substantial liquidation event.
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