On-chain knowledge reveals that Bitcoin’s estimated leverage ratio has been on the rise just lately.
Bitcoin Estimated Leverage Ratio Soars
Open curiosity has additionally elevated barely over the previous few hours, as analysts famous in a CryptoQuant submit. “Open curiosity” here’s a metric that measures the full quantity of contracts at the moment open within the Bitcoin futures market. This indicator considers each short-term and long-term contracts.
One other related metric is the ‘estimated leverage ratio’. It measures the ratio between open curiosity and the full quantity of BTC at the moment on the derivatives alternate. This indicator reveals how a lot leverage future market customers are utilizing on common.
If the ratio is excessive, the typical investor is at the moment utilizing a considerable amount of leverage. Such traits recommend that customers really feel daring and take excessive dangers. Traditionally, overly leveraged markets have usually elevated value volatility.
However, a low worth for the indicator implies that the person shouldn’t be very lively for the time being. Not surprisingly, these market circumstances had been accompanied by low asset worth volatility.
Here’s a chart displaying Bitcoin’s estimated leverage ratio and open curiosity traits over the previous few weeks.
Seems like solely certainly one of these metrics has noticed any vital rise in latest days | Supply: CryptoQuant
As proven within the graph above, Bitcoin’s estimated leverage ratio and open curiosity confirmed excessive values in the beginning of the month. It was solely when cryptocurrency costs plummeted that this overheated futures market calmed down.
As talked about earlier, over-leveraged markets have a tendency to extend the chance of asset volatility. This value plunge is a latest instance of this in motion.
An overheated futures market will increase value volatility as liquidations turn out to be extra widespread as buyers make the most of extra leverage.
Sudden value actions in over-leveraged market circumstances can lead to an occasion referred to as a “squeeze”. This occasion will see a lot of liquidations all of sudden, which can additional gasoline the value motion that triggered it within the first place, leading to much more liquidations.
Over the previous few hours, Bitcoin’s estimated leverage ratio has risen once more, suggesting that buyers are as soon as once more taking excessive dangers. Nevertheless, open curiosity solely rose barely.
This implies there aren’t that many positions open available in the market, however nonetheless many customers are utilizing a whole lot of leverage. I do not know if there are any. Nonetheless, the coin might see renewed volatility within the coming days.
Bitcoin is buying and selling round $22,000 on the time of writing, down 7% over the previous week.
BTC continues to maneuver sideways | Supply: BTCUSD on TradingView
Featured picture of Kanchanara on Unsplash.com, charts on TradingView.com and CryptoQuant.com