On-chain data shows the Bitcoin leverage ratio has surged up to a new all-time high, suggesting the market could be heading towards high volatility.<\/p>\n
Bitcoin All Exchanges Estimated Leverage Ratio Sets New ATH<\/p>\n
As pointed out by a CryptoQuant post<\/a>, the funding rate has remained neutral while the leverage has increased in the market.<\/p>\n The \u201call exchanges estimated leverage ratio<\/a>\u201d is an indicator that measures the ratio between the Bitcoin open interest and the derivative exchange reserve<\/a>.<\/p>\n What this metric tells us is the average amount of leverage currently being used by investors in the BTC futures market.<\/p>\n When the value of this indicator is high, it means users are taking a lot of leverage right now. Historically, such values have led to higher volatility in the price of the crypto.<\/p>\n On the other hand, the value of the metric being low suggests investors aren\u2019t taking high risk at the moment, as they haven\u2019t used much leverage.<\/p>\n Now, here is a chart that shows the trend in the Bitcoin leverage ratio over the last few years:<\/p>\n\n Looks like the value of the metric has been rising up during the last few months | Source: CryptoQuant<\/a><\/p>\n As you can see in the above graph, the Bitcoin estimated leverage ratio has shot up recently and has attained a new ATH. This means that investors are taking a high amount of leverage on average.<\/p>\n The reason overleveraged markets have usually turned highly volatile in the past lies in the fact that such conditions lead to mass liquidations becoming more probable.<\/p>\n Any sudden swings in the price during periods of high leverage can lead to a lot of contracts getting liquidated at once. But it doesn\u2019t end there; these liquidations further amplify the price move that created them, and hence cause even more liquidations.<\/p>\n Liquidations cascading together in such a way is called a \u201csqueeze<\/a>.\u201d Such events can involve either longs or shorts.<\/p>\n The Bitcoin funding rates (the periodic fee exchanged between long and short traders) can give us an idea about which direction a possible squeeze may go in.<\/p>\n CryptoQuant notes that this metric has a neutral value currently, implying the market is equally divided between shorts and longs. As such, it\u2019s hard to say anything about the direction a possible squeeze in the near future might lean towards.<\/p>\n The Bitcoin volatility<\/a> has in fact been very low in recent weeks, but with such high accumulation of leverage, it may be a matter of time before a volatile price takes over.<\/p>\n BTC Price<\/p>\n At the time of writing, Bitcoin\u2019s price floats around $19.6k, up 2% in the past week.<\/p>\n\n The BTC value continues to trend sideways | Source: BTCUSD on TradingView<\/a> <\/p>\n On-chain data shows the Bitcoin leverage ratio has surged up to a new all-time high, suggesting the market could be heading towards high volatility.<\/p>\n Bitcoin All Exchanges Estimated Leverage Ratio Sets New ATH<\/p>\n As pointed out by a CryptoQuant post<\/a>, the funding rate has remained neutral while the leverage has increased in the market.<\/p>\n The \u201call exchanges estimated leverage ratio<\/a>\u201d is an indicator that measures the ratio between the Bitcoin open interest and the derivative exchange reserve<\/a>.<\/p>\n What this metric tells us is the average amount of leverage currently being used by investors in the BTC futures market.<\/p>\n When the value of this indicator is high, it means users are taking a lot of leverage right now. Historically, such values have led to higher volatility in the price of the crypto.<\/p>\n On the other hand, the value of the metric being low suggests investors aren\u2019t taking high risk at the moment, as they haven\u2019t used much leverage.<\/p>\n Now, here is a chart that shows the trend in the Bitcoin leverage ratio over the last few years:<\/p>\n Looks like the value of the metric has been rising up during the last few months | Source: CryptoQuant<\/a><\/p>\n As you can see in the above graph, the Bitcoin estimated leverage ratio has shot up recently and has attained a new ATH. This means that investors are taking a high amount of leverage on average.<\/p>\n The reason overleveraged markets have usually turned highly volatile in the past lies in the fact that such conditions lead to mass liquidations becoming more probable.<\/p>\n Any sudden swings in the price during periods of high leverage can lead to a lot of contracts getting liquidated at once. But it doesn\u2019t end there; these liquidations further amplify the price move that created them, and hence cause even more liquidations.<\/p>\n Liquidations cascading together in such a way is called a \u201csqueeze<\/a>.\u201d Such events can involve either longs or shorts.<\/p>\n The Bitcoin funding rates (the periodic fee exchanged between long and short traders) can give us an idea about which direction a possible squeeze may go in.<\/p>\n CryptoQuant notes that this metric has a neutral value currently, implying the market is equally divided between shorts and longs. As such, it\u2019s hard to say anything about the direction a possible squeeze in the near future might lean towards.<\/p>\n
\nFeatured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com<\/p>","protected":false},"excerpt":{"rendered":"