a measure of leverage in Bitcoin The market has fallen to its lowest level since late 2021, a sign that volatility-generating speculators are increasingly exiting the market, meaning the world’s largest cryptocurrency by market capitalization is headed for calm waters ahead. Might be possible.
Crypto analytics firm CryptoQuant’s “Estimated Leverage Ratio” (ELR) fell to 0.195, the lowest since December 2021.
This is down from a peak of 0.4 just before the collapse of cryptocurrency exchange FTX last November, which was the catalyst. Bitcoin It reached its 2022 bear market low of $15,000.
CryptoQuant calculates its ELR by dividing the dollar value of the open perpetual by Bitcoin by number of futures contract positions Bitcoin Tokens being held by derivatives exchanges (where traders open those perpetual bitcoin future positions).
A lower number means that traders on derivatives exchanges open positions with fewer profits in proportion to the number of tokens on the exchange, essentially meaning that there is less speculation in the market.
Lower Leverage Could Be Bullish for Bitcoin
As can be seen above, the relationship between CryptoQuant’s ELR and B T c Price is weak.
ELR was around current levels when bitcoin hit record highs in late 2021, before ELR peaked when Bitcoin The price was around the $20,000 mark.
But even then low ELR can still be bullish Bitcoin Price, because when the market becomes highly leveraged, it can trigger volatility (as the position gets closed out).
High volatility may deter investors. A low volatility profile could be a key factor in attracting new retail and institutional investors to the space.
Comes after fall in ELR Wild Liquidation-Induced Swings in the Price of Bitcoin on Wednesday.
According to Bitcoin Options Market Pricing, further low volatility is what investors are hoping for.
Implied volatility for at-the-money (ATM) bitcoin options expiring in 7, 30, 90 and 180 days are all in the 45-55% range, which is close to historical lows.
The Bitcoin Volatility Index (DVOL) on major derivatives exchange Deribit is also nearing its all-time low at the current level of around 55.
Alternative metrics of leverage in the bitcoin market have also been in decline.
The ratio of the dollar value of open interest in the bitcoin futures market to the market capitalization of bitcoin was approximately 0.0176.
This is according to data from The Block, which showed open interest in bitcoin futures on Wednesday stood at around $9.7 billion, while bitcoin had a closing market cap of around $550 billion.
On November 1, 2022, when bitcoin’s closing market cap was just over $393 billion and futures open interest was around $11.56 billion, the ratio was at a high of close to 0.03.
A wash of speculators and bitcoin “tourists” has historically been consistent with the market then moving to recover again, before FOMO (fear of missing out) related to price momentum leads to a new wave of speculators and “tourists”. attracts.
That’s why on-chain analysts like to monitor metrics like the actual HODL ratio, which reflects the balance between BTC wealth in 1-week-old coins versus 1-2-year-old coins.
As can be seen in the above chart presented by crypto analytics firm Glassnode, this ratio tends to trend downward with bear market lows, indicating that weak conviction has wiped out speculators and tourists and high conviction has been wiped out. A high proportion remain long-term HODLers. ,