Staggering Leverage Metrics
Under the frenzy of AI-themed trading, global equity markets have accumulated massive leverage. U.S. margin debt hit a record $1.4 trillion, while leveraged ETF assets surged 100% in two months to $220 billion. South Korea's KOSPI index experienced violent swings and triggered a circuit breaker due to high leverage and concentrated positions. These figures indicate that the current bull market is partly fueled by borrowed money, pushing leverage to extreme levels.
Wall Street Institutions Sound Alarms
Barclays and Morgan Stanley have recently warned that high leverage in derivatives could become a source of market instability. A reversal in market sentiment would trigger large-scale forced liquidations, creating a negative spiral of deleveraging that amplifies losses. Although these warnings target traditional equities, the same logic applies to crypto markets, which also rely heavily on leverage.
Currently, open interest in crypto derivatives remains elevated, with funding rates on perpetual swaps staying positive—a sign of overheated long sentiment. If global risk assets sell off simultaneously, leveraged liquidations in crypto could exacerbate the downturn. Investors should monitor margin debt, open interest ratios, and other indicators to manage risk proactively.