Digital Asset Market Boom May Lead to Future Risks: PBs the Main Cause

The digital asset market has been buoyant recently, ending a nearly two-year cryptocurrency winter. However, good times often breed the seeds of the next crash. If the current bull market lasts more than 18 months, future risks could come from major players (PBs) for three reasons: 1) PBs are becoming major players and lenders in the crypto market; 2) PBs currently have stricter standard lending, which is mainly given to low retracement strategies (e.g., delta-neutral), with lower systemic risk; and 3) if the expected returns from delta-neutral policies decline, the PBs may broaden their exposure in terms of who they spend and what they service, which could trigger trigger systemic. During the last bull cycle, lenders exacerbated the market collapse. , PBs primarily realized gains through 1) trading revenues from market access and 2) loan lending revenues from lending to Delta-neutral strategies. As more capital flows into these low-risk strategies, capital arbitrage returns may recover. If the expected returns if below the booked cost of the PB's loans, the PBs will have to decide to expand their risk universe or reconsider product offerings.