On-chain data shows that the Bitcoin futures market has remained heated recently as leverage taken by investors has been quite high.
Bitcoin Estimated Leverage Ratio Drops A Little But Still Stays Very High
Following the surge in derivatives activity, leverage in the market recently hit a new all-tine high, as noted by an analyst in a CryptoQuant after.
the “all exchanges estimated leverage ratio” is an indicator that is defined as the ratio between the outstanding interest and the derivatives reserve.
When the value of this metric is high, it means that the average investor is currently using a large amount of leverage on exchanges. Such a trend suggests that holders are currently willing to take a high risk.
On the other hand, low values of the indicator imply that holders are going for a low-risk approach at the moment as they don’t use much leverage.
Now, here’s a chart showing the trend in Bitcoin’s estimated leverage ratio across all exchanges over the past few years:
The value of the metric seems to have rapidly risen during the last few weeks | Source: CryptoQuant
As you can see in the chart above, Bitcoin’s estimated leverage ratio had risen in recent weeks and hit a new all-time high a while back.
Since then, however, the value of the indicator has fallen slightly. This decrease was caused by the recent temporary wave of volatility in the market due to the CPI releasethat washed away a large amount of leverage.
Nevertheless, despite the decline, the indicator’s value has remained quite high, meaning there is still plenty of leverage in the market.
Historically, over-leveraged markets have usually ended in very sharp price movements, as liquidations happen quite easily in such environments.
Such liquidations amplify the price movement that caused them, leading to further liquidations. This event in which liquidations overlap is called a squeeze.
Since the leverage is so high in the Bitcoin futures market right now, a squeeze could likely occur and the price of BTC could break out of range.
As for the direction the squeeze could go, the quant notes, “With retail traders being overly optimistic compared to institutional traders, the risk reward doesn’t look good for the bulls.”
BTC price
At the time of writing, Bitcoin’s price is hovering around $19.1k, down 2% over the past seven days.
Looks like the value of the crypto has once again gone stagnant after the CPI volatility | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com
