On-chain information exhibits the Bitcoin leverage ratio has surged as much as a brand new all-time excessive, suggesting the market may very well be heading in the direction of excessive volatility.
Bitcoin All Exchanges Estimated Leverage Ratio Sets New ATH
As identified by a CryptoQuant post, the funding fee has remained impartial whereas the leverage has elevated available in the market.
The “all exchanges estimated leverage ratio” is an indicator that measures the ratio between the Bitcoin open curiosity and the derivative exchange reserve.
What this metric tells us is the typical quantity of leverage at the moment being utilized by traders within the BTC futures market.
When the worth of this indicator is excessive, it means customers are taking a variety of leverage proper now. Historically, such values have led to greater volatility within the value of the crypto.
On the opposite hand, the worth of the metric being low suggests traders aren’t taking excessive danger in the mean time, as they haven’t used a lot leverage.
Now, here’s a chart that exhibits the development within the Bitcoin leverage ratio over the previous few years:
Looks like the worth of the metric has been rising up throughout the previous few months | Source: CryptoQuant
As you may see within the above graph, the Bitcoin estimated leverage ratio has shot up just lately and has attained a brand new ATH. This signifies that traders are taking a excessive quantity of leverage on common.
The purpose overleveraged markets have often turned extremely risky previously lies in the truth that such situations result in mass liquidations turning into extra possible.
Any sudden swings within the value during times of excessive leverage can result in a variety of contracts getting liquidated without delay. But it doesn’t finish there; these liquidations additional amplify the value transfer that created them, and therefore trigger much more liquidations.
Liquidations cascading collectively in such a manner is known as a “squeeze.” Such occasions can contain both longs or shorts.
The Bitcoin funding charges (the periodic charge exchanged between lengthy and quick merchants) may give us an concept about which course a doable squeeze could go in.
CryptoQuant notes that this metric has a impartial worth at the moment, implying the market is equally divided between shorts and longs. As such, it’s exhausting to say something in regards to the course a doable squeeze within the close to future may lean in the direction of.
The Bitcoin volatility has the truth is been very low in current weeks, however with such excessive accumulation of leverage, it might be a matter of time earlier than a risky value takes over.
BTC Price
At the time of writing, Bitcoin’s value floats round $19.6k, up 2% previously week.
The BTC worth continues to development sideways | Source: BTCUSD on TradingView
Featured picture from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com
