In a notable shift within the cryptocurrency market in 2025, leverage trading has surged back to levels reminiscent of previous bull markets. This resurgence comes even as recent fluctuations have highlighted the potential for rapid unwinding of overextended positions. According to Galaxy Digital’s Q2 State of Crypto Leverage report, crypto-collateralized loans increased by 27% in the last quarter, reaching a staggering $53.1 billion—the highest figure since early 2022. This growth is primarily driven by unprecedented demand in decentralized finance (DeFi) lending, coupled with a renewed risk appetite among traders.
Last week’s market dynamics were notably affected by Bitcoin’s decline from approximately $124,000 to a low of $118,000, which resulted in over $1 billion in liquidations across various crypto derivatives. This event marked the largest liquidation of long positions since early August 2024. While analysts characterized this pullback as a healthy profit-taking scenario rather than an indication of a market reversal, it nevertheless underscores the fragility of the market when leverage is built so swiftly.
“The return of leverage is cutting both ways,” Galaxy analysts noted, pointing out that stress points are becoming increasingly apparent.
In July, a significant wave of withdrawals on the Aave platform led to Ethereum (ETH) borrowing rates surpassing the staking yields of ETH. This scenario disrupted the economics of the popular “looping” trade, where staked ETH is used as collateral for additional borrowing. The ensuing unwinding of these positions caused Ethereum’s Beacon Chain exit queue to swell to a record duration of 13 days.
Additionally, Galaxy has observed that borrowing costs for USD Coin (USDC) in the over-the-counter market have been on the rise since July 2024, despite on-chain lending rates remaining relatively stable. The growing disparity between off-chain and on-chain dollar markets suggests that demand for off-chain liquidity is outpacing available resources on-chain. This mismatch poses a risk of heightened volatility, particularly if market conditions tighten further.
Despite these stress indicators, the overall sentiment remains cautiously optimistic. With institutional demand and ETF inflows continuing to provide support, strategists maintain a constructive outlook on crypto assets. However, concerns surrounding ballooning loan volumes, concentration of lending power, and liquidity challenges in DeFi are becoming increasingly prominent, as noted by Galaxy Digital.
As of now, Bitcoin is trading at $118,061.51, reflecting a modest increase of 0.44%. Meanwhile, Ethereum’s current trading price stands at $4,524.10, up 2.13%, with a record $3.8 billion in Ether awaiting unstaking, which could exert additional profit-taking pressure on the market.
In the broader financial landscape, gold is currently priced at $3,332.95, showing a slight decline of 0.11%. This shift comes as recent U.S. inflation data has affected Federal Reserve rate-cut expectations, leaving gold prices to consolidate above the vital support level of $3,310. Market participants are particularly attentive to Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium, which could further influence market sentiment.
As the cryptocurrency market continues to evolve in 2025, the balance between leverage, risk, and institutional interest presents both opportunities and challenges for traders. For ongoing updates, refer to reliable sources such as CoinDesk.
