According to data from the Bitcoin blockchain, the Bitcoin leverage ratio remains very high. This is a signal that the cryptocurrency has generally been bearish over the past months.
The Bitcoin Exchange Leverage Ratio has been rising in recent weeks
A CryptoQuant analyst noted that the BTC-all exchanges leverage ratio was still very high. It suggests that there could be a further downtrend in crypto.
The “leverage ratio” is an indicator that is defined as the ratio between the open interest and the all derivatives exchange reserve.
Here, the “open interest” is a measure of the total amount of Bitcoin futures positions currently open in the derivatives market.
And the “derivatives exchange reserve” is just the total number of coins currently stored in wallets of all derivatives exchanges.
The leverage ratio shows us how much leverage people are using in the BTC futures markets right now.
If this indicator’s value is very high, users may be taking too much risk by using leverage. Higher volatility is usually a result of excessive leverage.
Related Reading | Bitcoin On-Chain Data: Miners Deposit Big To Derivatives Exchanges
On the other hand, lower values of the ratio can result in lesser relative volatility in the crypto’s price since users aren’t taking much risk.
This chart shows you the Bitcoin leverage ratio for the last one year.
CryptoQuant: The metric's value seems to be quite high these days.| Source: CryptoQuant
As you can see in the above graph, whenever the Bitcoin leverage ratio has hit a steep value during the last several months, both the indicator and the coin’s price has subsequently plunged down.
Mass leverage flushes like these are called “liquidation squeezes.” During such events, liquidations cascade together and amplify the price move that triggered the squeeze.
Why Bitcoin Is Undervalued According To This Expert’s “Conservative” Model| Why Bitcoin Is Undervalued According To This Expert’s “Conservative” Model
Since the price moved in the same direction as the squeeze in these instances, they were all examples of a “long squeeze.”
It looks like the ratio’s value is once again high right now. If a similar trend as in the last few months follows this time as well, then a long squeeze may be coming soon and taking Bitcoin in for another plummet.
BTC price
At the time of writing, Bitcoin’s price floats around $20.5k, up 4% in the last week. In the past month, crypto lost 30%.
Source: BTCUSD on TradingView| Source: BTCUSD on TradingView
Featured Image from Unsplash.com by Mana5280, Charts from TradingView.com, CryptoQuant.com
