A quant has explained how the current large Bitcoin leverage ratio values can help bring a turnabout to the crypto’s price.
Bitcoin Leverage Ratio rises to values greater than during the ATH
As explained by an analyst in a CryptoQuant post, the massive leverage ratio right now might help BTC’s price reverse its trend.
The “Bitcoin leverage ratio” is an on-chain indicator that is defined as the open interest divided by the (derivative) exchange reserve.
Here, the “open interest” is a measure of the amount of futures contracts currently open in the derivatives market. We can also see the exchange reserve, which shows how much Bitcoin is currently in our exchange wallets.
This metric shows users’ average leverage. The metric’s value helps us know whether Bitcoin investors are taking a high risk or a low risk.
Investors are more confident about their position when the ratio’s value rises.
Conversely, investors who see a declining trend would be less likely to take on risk and close their positions.
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Below is a chart showing how the Bitcoin leverage rate has changed over time.
This indicator appears to be increasing in value -- Source: CryptoQuant| Source: CryptoQuant
You can see that the Bitcoin leverage has been in an upward trend for a while and is now at a higher level than it was during the last price ATH.
Quant has placed the peaks on the chart, and they were compared with the BTC price. Evidently, when the indicator reaches a peak, the trend of the cryptocurrency’s price reverses.
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A second indicator is also shown in this chart, the RSI. It indicates whether BTC’s current price is too high or low.
It appears that the price is also changing in the opposite direction to the way that this metric turned. The chart shows that the current leverage ratio appears to have reached a peak, and the RSI seems to be increasing. If this is true, the Bitcoin price could change direction to the sky next.
At the time of writing, Bitcoin’s price floats around $48.7k, down 2% in the last seven days. This chart illustrates the changes in cryptocurrency’s value over five days.
BTC's value jumped up a few weeks ago but has been moving backwards since then. Source: BTCUSD on tradingView| Source: BTCUSD on TradingView
Unsplash.com featured image, Charts from TradingView.com and CryptoQuant.com charts