【Market Observation｜Are We Approaching a "Minsky Moment"?】

Recently, the market atmosphere has increasingly reminded me of a classic term—Minsky Moment.

It’s a moment when “everything seems stable, but collapses in an instant.”

What is a Minsky Moment?｜The Critical Point of the Leverage Cycle

Hyman Minsky proposed a financial instability hypothesis:
Stability itself breeds instability. During long periods of prosperity, investors gradually believe risks are under control and leverage can be increased.

The borrowing structure goes through three stages:
1️⃣ Hedge Finance: Able to pay principal and interest.
2️⃣ Speculative Finance: Able to pay interest but not principal, only able to roll over debt.
3️⃣ Ponzi Finance: Even interest payments rely on borrowing new debt to pay old debt.

When more and more funds enter the third stage, a Minsky Moment is near. At that point, no “black swan” is needed—just liquidity tightening and a slight shake in confidence can trigger a chain de-leveraging and a collapse.

Why do I think it feels similar now?
Recent market signals are a bit unsettling: high risk chasing in a high-interest environment—although policy interest rates remain high, capital is flowing into risk assets (AI concept stocks, cryptocurrencies, subprime loans). This is a classic “excessive leverage optimism” phase.

The inertia of credit expansion: even with high interest rates, corporate bonds and consumer credit continue to rise. This indicates the market still assumes “nothing will happen, we can hold.”

Market volatility is too low: VIX, MOVE, and even implied volatility in the crypto market are at historic lows, suggesting investors’ risk perception is dulling.

Asset prices are detached from fundamentals: similar to the housing market in 2006 or tech stocks in 2021. Many valuations now focus less on cash flow and more on “stories.”

In such a situation, just one liquidity event could trigger a “Minsky trigger point.”

At this stage, I find three sets of data particularly worth monitoring:

1️⃣ Credit Spread → When the spread between investment-grade and high-yield bonds widens rapidly, it signals risk aversion is returning.

2️⃣ Cost of Capital and Liquidity Indicators (such as SOFR, US Dollar Index, reverse repurchase agreements) → Dollar tightening is usually the “last straw.”

3️⃣ Leverage Ratio and Margin Usage (especially in the derivation market) → When the market begins forced de-leveraging, even assets with good fundamentals will be sold.

In other words, a “Minsky Moment” is never the start of a bubble burst but the moment when confidence disappears.

The real Minsky Moment often comes later and more violently than people expect. But the current features—high leverage, low volatility, exuberant sentiment, and risk neglect—indeed meet the “Minsky conditions.”

At this stage, the goal isn’t to predict a collapse but to reduce exposure relying on optimistic assumptions. Especially for assets maintained by liquidity, caution is essential.

#MinskyMoment #Crypto #Kaito #CookieFun