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 Alternate Leverage Ratio Has Been Going Up In Latest 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 alternate reserve.
Right here, the “open curiosity” is a measure of the full quantity of Bitcoin futures positions at the moment open within the derivatives market.
And the “derivatives alternate reserve” is simply the full 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 threat within the type of leverage in the intervening time. An extra of leverage often results in greater 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 threat.
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 | Supply: CryptoQuant
As you may 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 referred to as “liquidation squeezes.” Throughout such occasions, liquidations cascade collectively and amplify the worth 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 just like the ratio’s worth is as soon as once more excessive proper now. If the same development as in the previous couple of months follows this time as properly, then a protracted squeeze could also be coming quickly and taking Bitcoin in for an additional plummet.
On the time of writing, Bitcoin’s value floats round $20.5k, up 4% within the final week. Over the previous month, the crypto has misplaced 30% in worth.
Seems like the worth of the crypto has been happening over the previous couple of days | Supply: BTCUSD on TradingView
Featured picture from mana5280 on Unsplash.com, charts from TradingView.com, CryptoQuant.com