On-chain knowledge reveals the Bitcoin leverage ratio has surged as much as a brand new all-time excessive, suggesting the market could possibly be heading in the direction of excessive volatility.
Bitcoin All Exchanges Estimated Leverage Ratio Units New ATH
As identified by a CryptoQuant post, the funding fee has remained impartial whereas the leverage has elevated out there.
The “all exchanges estimated leverage ratio” is an indicator that measures the ratio between the Bitcoin open curiosity and the spinoff alternate reserve.
What this metric tells us is the typical quantity of leverage at the moment being utilized by buyers within the BTC futures market.
When the worth of this indicator is excessive, it means customers are taking a number of leverage proper now. Traditionally, such values have led to larger volatility within the worth of the crypto.
However, the worth of the metric being low suggests buyers aren’t taking excessive threat in the meanwhile, as they haven’t used a lot leverage.
Now, here’s a chart that reveals the pattern within the Bitcoin leverage ratio over the previous few years:
Seems like the worth of the metric has been rising up throughout the previous few months | Supply: CryptoQuant
As you possibly can see within the above graph, the Bitcoin estimated leverage ratio has shot up lately and has attained a brand new ATH. Which means buyers are taking a excessive quantity of leverage on common.
The rationale overleveraged markets have normally turned extremely risky prior to now lies in the truth that such situations result in mass liquidations turning into extra possible.
Any sudden swings within the worth during times of excessive leverage can result in a number of contracts getting liquidated without delay. However it doesn’t finish there; these liquidations additional amplify the value transfer that created them, and therefore trigger much more liquidations.
Liquidations cascading collectively in such a approach known as a “squeeze.” Such occasions can contain both longs or shorts.
The Bitcoin funding charges (the periodic payment exchanged between lengthy and quick merchants) may give us an thought about which course a potential squeeze might go in.
CryptoQuant notes that this metric has a impartial worth at the moment, implying the market is equally divided between shorts and longs. As such, it’s exhausting to say something concerning the course a potential squeeze within the close to future may lean in the direction of.
The Bitcoin volatility has in actual fact been very low in current weeks, however with such excessive accumulation of leverage, it might be a matter of time earlier than a risky worth takes over.
BTC Worth
On the time of writing, Bitcoin’s worth floats round $19.6k, up 2% prior to now week.
The BTC worth continues to pattern sideways | Supply: BTCUSD on TradingView
Featured picture from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com