On-chain information reveals the Bitcoin leverage ratio nonetheless has a really excessive worth, an indication that has often confirmed to be bearish for the crypto in current months.
Bitcoin Exchange Leverage Ratio Has Been Going Up In Recent Weeks
As identified by an analyst in a CryptoQuant post, the BTC all exchanges leverage ratio remains to be fairly excessive, suggesting that the crypto might nonetheless see additional downtrend.
The “leverage ratio” is an indicator that’s outlined because the ratio between the open curiosity and the all derivatives trade reserve.
Here, the “open interest” is a measure of the full quantity of Bitcoin futures positions presently open within the derivatives market.
And the “derivatives exchange reserve” is simply the full variety of cash presently saved in wallets of all derivatives exchanges.
What the leverage ratio tells us is how a lot leverage customers are taking over common within the BTC futures market proper now.
When the worth of this indicator is excessive, it means customers are taking a considerable amount of danger within the type of leverage in the meanwhile. An extra of leverage often results in increased volatility out there.
Related Reading | Bitcoin On-Chain Data: Miners Deposit Big To Derivatives Exchanges
On the opposite hand, decrease values of the ratio may end up in lesser relative volatility within the crypto’s worth since customers aren’t taking a lot danger.
Now, here’s a chart that reveals the development within the Bitcoin all exchanges leverage ratio during the last 12 months:
The worth of the metric appears to have been fairly excessive in current days | Source: CryptoQuant
As you’ll be able to see within the above graph, each time the Bitcoin leverage ratio has hit a steep worth over the past a number of months, each the indicator and the coin’s worth has subsequently plunged down.
Mass leverage flushes like these are known as “liquidation squeezes.” During such occasions, liquidations cascade collectively and amplify the worth transfer that triggered the squeeze.
Related Reading | Why Bitcoin Is Undervalued According To This Expert’s “Conservative” Model
Since the worth moved in the identical path because the squeeze in these situations, they had been all examples of a “long squeeze.”
It appears just like the ratio’s worth is as soon as once more excessive proper now. If an analogous development as in the previous few months follows this time as nicely, then a protracted squeeze could also be coming quickly and taking Bitcoin in for one more plummet.
BTC Price
At the time of writing, Bitcoin’s price floats round $20.5k, up 4% within the final week. Over the previous month, the crypto has misplaced 30% in worth.
Looks like the worth of the crypto has been happening over the previous few days | Source: BTCUSD on TradingView
Featured picture from mana5280 on Unsplash.com, charts from TradingView.com, CryptoQuant.com
