Bitcoin Leverage Ratio Hits New ATH, Market In For A Rough Ride?
On-chain information reveals the Bitcoin leverage ratio has surged as much as a brand new all-time excessive, suggesting the market may very well be heading in direction of excessive volatility.
Bitcoin All Exchanges Estimated Leverage Ratio Units 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 spinoff alternate reserve.
What this metric tells us is the typical quantity of leverage at present being utilized by buyers within the BTC futures market.
When the worth of this indicator is excessive, it means customers are taking lots of leverage proper now. Traditionally, such values have led to increased volatility within the value of the crypto.
Alternatively, the worth of the metric being low suggests buyers aren’t taking excessive threat in the intervening time, as they haven’t used a lot leverage.
Now, here’s a chart that reveals the development within the Bitcoin leverage ratio over the previous few years:
Seems like the worth of the metric has been rising up throughout the previous few months | Supply: CryptoQuant
As you’ll be able to see within the above graph, the Bitcoin estimated leverage ratio has shot up lately and has attained a brand new ATH. Because of this buyers are taking a excessive quantity of leverage on common.
The rationale overleveraged markets have often turned extremely risky prior to now 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 lots of contracts getting liquidated without delay. But it surely 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 means 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) can provide us an thought about which route a attainable squeeze might go in.
CryptoQuant notes that this metric has a impartial worth at present, implying the market is equally divided between shorts and longs. As such, it’s exhausting to say something in regards to the route a attainable squeeze within the close to future would possibly lean in direction of.
The Bitcoin volatility has in truth 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.
On the time of writing, Bitcoin’s value floats round $19.6k, up 2% prior to now week.
The BTC worth continues to development sideways | Supply: BTCUSD on TradingView
Featured picture from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com