On-chain data shows the Bitcoin leverage ratio has continued to stay at high values despite the recent decline in the crypto’s price.
Bitcoin Leverage Ratio Hasn’t Budged Much In Response To Price Plunge
An analyst pointed out in CryptoQuant that the BTC leverage has been at high levels despite the recent price drop to $41k.
The “estimated leverage ratio” is an indicator that’s calculated by dividing the open interest with the exchange reserve. The metric measures the amount of leverage Bitcoin futures investors use at any given moment.
Here, “open interest” is the measure of the total amount of futures contracts open on derivatives exchanges. And the “exchange reserve” is the total amount of coins currently present in wallets of all derivative exchanges.
If the Bitcoin leverage ratio increases, investors will begin to increase their leverage.
Conversely, futures holders who see a decrease in their position are likely to be closing them down. It could be mass liquidations, or investors choosing to lower their risk now.
An event of mass liquidation (often called long or short squeeze), occurs when Bitcoin’s price makes an abrupt swing. This can lead to multiple liquidations on the market.
Below is a chart that displays the trend over the last week in this indicator:
Source: CryptoQuant| Source: CryptoQuant
You can see that the currency’s price has fallen but the leverage ratio is still high.
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There are now fewer available positions, as the open interest has decreased slightly. The average leverage per transaction has risen, this means that it is actually more expensive to invest.
According to the quant, this may indicate that Bitcoin investors are becoming more bold and willing to take on greater risk.
It is possible to estimate the ratio of long and short positions by the fact that the current funding rate (another indicator which can be used to help determine the level) is approximately neutral.
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It is worth looking at the price movement in the immediate future as an abrupt move in one direction could cause a squeeze, pushing the Bitcoin value further.
BTC price
At the time of writing, Bitcoin’s price floats around $41.4k, up 5% in the last week.
Source: BTCUSD tradingview| Source: BTCUSD on TradingView
Unsplash.com featured image, Charts from TradingView.com and CryptoQuant.com charts