Markets don’t collapse instantly.
They unwind in layers.
Systemic deleveraging begins quietly:
• Correlations tighten
• Funding remains elevated despite slowing price
• Open interest stays high while displacement weakens
• Liquidity becomes thinner on both sides
At first, it looks like normal consolidation.
But underneath, leverage remains stretched.
The first wave is controlled: – Minor pullbacks
– Small liquidations
– Reduced continuation strength
Then comes structural stress.
When price reaches clustered liquidation levels,
forced selling accelerates.
Liquidation triggers convert into market orders.
Market orders hit thin books.
Thin books expand volatility.
What began as compression becomes cascade.
Retail sees panic.
Institutions see balance sheet reduction.
Systemic deleveraging is not emotional collapse.
It is risk compression releasing mechanically.
The key warning signs appear before volatility spikes:
• Expansion failures during uptrend
• Persistent high funding without follow-through
• Open interest plateauing while price stalls
• Liquidity gaps forming below structure
By the time headlines mention “crash,”
leverage has already begun unwinding.
Understanding systemic deleveraging prevents overexposure at fragility points.
Because markets don’t fail from weakness alone.
They fail when leverage cannot sustain itself.
And leverage always unwinds faster than it builds.