On-chain knowledge reveals the Bitcoin leverage ratio nonetheless has a really excessive worth, an indication that has normally confirmed to be bearish for the crypto in current months.
Bitcoin Exchange Leverage Ratio Has Been Going Up In Recent 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 trade reserve.
Here, the “open interest” is a measure of the whole quantity of Bitcoin futures positions presently open within the derivatives market.
And the “derivatives exchange reserve” is simply the whole variety of cash presently saved in wallets of all derivatives exchanges.
What the leverage ratio tells us is how a lot leverage customers are taking up 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 for the time being. An extra of leverage normally results in greater volatility out there.
Related Reading | Bitcoin On-Chain Data: Miners Deposit Big To Derivatives Exchanges
On the opposite hand, 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 12 months:
The worth of the metric appears to have been fairly excessive in current days | Source: CryptoQuant
As you possibly can see within the above graph, at any time when the Bitcoin leverage ratio has hit a steep worth over the last 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.” During such occasions, liquidations cascade collectively and amplify the value transfer that triggered the squeeze.
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Since the value moved in the identical course because the squeeze in these situations, they have been all examples of a “long squeeze.”
It appears just like the ratio’s worth is as soon as once more excessive proper now. If an analogous 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.
At 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.
Looks like the worth of the crypto has been happening over the previous couple of days | Source: BTCUSD on TradingView
Featured picture from mana5280 on Unsplash.com, charts from TradingView.com, CryptoQuant.com