The Bitcoin Futures market remains heated as leverage remains high
On-chain data shows that the Bitcoin futures market has remained heated recently as the leverage that investors have taken on has been quite high.
Bitcoin’s estimated utilization rate is decreasing slightly, but is still very high
Following the surge in derivatives activities, leverage in the market hit a new all-tine high recently, as noted by an analyst in a CryptoQuant post.
“All stock exchanges’ estimated leverage ratio” is an indicator defined as the ratio between open interest and the derivative currency reserve.
When the value of this metric is high, it means that the average investor is currently using a large amount of leverage on stock exchanges. Such a trend suggests that holders are willing to take high risk at the moment.
On the other hand, low values of the indicator suggest that holders are taking a low-risk approach at the moment as they are not using much leverage.
Now, here’s a chart showing the trend in Bitcoin all exchanges’ estimated leverage ratio over the last couple of years:
The value of the metric seems to have rapidly risen during the last few weeks | Source: CryptoQuant
As you can see in the graph above, Bitcoin’s estimated leverage ratio had increased in recent weeks and reached a new all-time high just a while ago.
Since then, however, the indicator’s value has decreased slightly. This decline was initiated by the recent temporary rush of volatility in the market due to the CPI release, which washed out a large amount of leverage.
Nevertheless, the indicator’s value has remained quite high despite the decline, meaning there is still plenty of leverage to go around the market.
Historically, over-rationed markets have usually ended in very sharp price movements, as liquidations tend to happen quite easily in such environments.
Such liquidations reinforce the price movement that caused them, and lead to even more liquidations. This event where liquidations coincide is called a squeeze.
Since leverage is so high in the Bitcoin futures market right now, a squeeze could likely take place and break BTC’s price out of the range.
As for which direction the squeeze could go, the quant comments: “With retail traders overly bullish compared to institutional traders, the risk reward doesn’t look good for the bulls.”
BTC price
At the time of writing, Bitcoin’s price is hovering around $19.1k, down 2% in the last seven days.
Looks like the value of the crypto has once again gone stagnant after the CPI volatility | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com
