On-chain knowledge 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 Alternate Leverage Ratio Has Been Going Up In Current 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 may nonetheless see additional downtrend.
The “leverage ratio” is an indicator that’s outlined because the ratio between the open curiosity and the all derivatives change reserve.
Right here, the “open curiosity” is a measure of the overall quantity of Bitcoin futures positions at the moment open within the derivatives market.
And the “derivatives exchange reserve” is simply the overall variety of cash at the moment 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 mean time. An extra of leverage often results in increased volatility available in the market.
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However, decrease values of the ratio may end up in lesser relative volatility within the crypto’s value since customers aren’t taking a lot danger.
Now, here’s a chart that reveals the development within the Bitcoin all exchanges leverage ratio over the past yr:
The worth of the metric appears to have been fairly excessive in current days | Supply: CryptoQuant
As you’ll be able to see within the above graph, at any time when the Bitcoin leverage ratio has hit a steep worth over the past a number of months, each the indicator and the coin’s value has subsequently plunged down.
Mass leverage flushes like these are known as “liquidation squeezes.” Throughout such occasions, liquidations cascade collectively and amplify the value transfer that triggered the squeeze.
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For the reason that value moved in the identical path because the squeeze in these situations, they have been all examples of a “lengthy squeeze.”
It appears to be like just like the ratio’s worth is as soon as once more excessive proper now. If the same development as in the previous few months follows this time as effectively, then an extended squeeze could also be coming quickly and taking Bitcoin in for an additional plummet.
On 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.
Appears to be like like the worth of the crypto has been happening over the previous few days | Supply: BTCUSD on TradingView
Featured picture from mana5280 on Unsplash.com, charts from TradingView.com, CryptoQuant.com