Bitcoin Leverage Ratio Witnesses Notable Spike — Bullish Or Bearish For Price?
October 20 2024 - 10:00AM
NEWSBTC
Over the past week, Bitcoin (BTC) has been enjoying attention from
all tiers of investors; from short-term traders to institutional
players. This can be seen in the strong performance of spot Bitcoin
ETFs in the previous week. Similarly, the Bitcoin derivatives
market appears to be witnessing increased risk-taking behavior from
traders as shown by recent on-chain data. Bitcoin Market Now
In ‘A Risk Zone’ — What’s Happening? Leverage is a tool that allows
traders to control substantial positions with a relatively small
amount of capital. While leverage helps traders and investors
bolster their potential profits, it also opens them up to
significant risks, especially when the market volatility is
elevated. Related Reading: Solana Struggles To Break $160
Resistance As Top Analyst Predicts A Coming Surge In a recent
Quicktake post on the CryptoQuant platform, an analyst with the
pseudonym Crazzyblockk revealed that there has been increased
leverage use amongst Bitcoin market participants. This on-chain
observation is based on the Estimated Leverage Ratio (ELR) metric,
which measures the ratio of open interest in futures contracts to
the coin reserves on exchanges. Crazzyblockk noted that the
reserves of some large-cap stablecoins are also considered in the
calculation of the Estimated Leverage Ratio. “This is based on the
concept that stablecoins have been increasingly used as collateral
for derivative trading in recent years,” the analyst added. The
Estimated Leverage Ratio serves as a valuable indicator in
assessing the amount of leverage used by market participants for
trading derivatives. According to the CryptoQuant analyst, the ELR
metric has witnessed a notable upswing over the past few months,
which signals increasing open interest and dwindling exchange
reserves, particularly Bitcoin. Furthermore, the Bitcoin
derivatives market has now seemingly entered a risk zone due to the
sharp increase in the leverage being used by market participants.
According to the Quicktake post, this implies that the market is
susceptible to spontaneous price movements in any direction. Hence,
short-term traders might want to approach the market with caution.
Has BTC Price Established A Local Top? As of this writing, the
price of Bitcoin stands at around $68,400, reflecting no
significant change in the past day. According to data from
CoinGecko, the premier cryptocurrency is up by over 8% in the past
week. Related Reading: Dogecoin And Shiba Inu Social Dominance At
5-Month High — Can FOMO Stall Price Growth? In a separate Quicktake
post, an analyst revealed that the price of Bitcoin might be
readying for a brief correction after printing a local top. This
analysis is based on the increasing non-realized profits of Bitcoin
traders in recent weeks. According to CryptoQuant data, the
unrealized profits of BTC traders have surpassed $7 billion, which
suggests potential selling pressure in the near future. And the
risk of a price pullback rises when investors sit on such
significant unrealized gains, as there is an increased temptation
of taking a profit. Featured image from iStock, chart from
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