Bitcoin Bearish Signal: Leverage Ratio Is Still Very High

Keshav Verma

Last Updated: June 11, 2024 2:21 pm

3 mins read

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On-chain data shows the Bitcoin leverage ratio still has a very high value, a sign that has usually proven to be bearish for the crypto in recent months.

Bitcoin Exchange Leverage Ratio Has Been Going Up In Recent Weeks

As pointed out by an analyst in a CryptoQuant post, the BTC all exchanges leverage ratio is still quite high, suggesting that the crypto could still see further downtrend.

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.

What the leverage ratio tells us is how much leverage users are taking on average in the BTC futures market right now.

When the value of this indicator is high, it means users are taking a large amount of risk in the form of leverage at the moment. An excess of leverage usually leads to higher volatility in the market.

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.

Now, here is a chart that shows the trend in the Bitcoin all exchanges leverage ratio over the last year:

The value of the metric seems to have been quite high in recent 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.

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. Over the past month, the crypto has lost 30% in value.

Looks like the value of the crypto has been going down over the last few days | Source: BTCUSD on TradingView

Featured image from mana5280 on Unsplash.com, charts from TradingView.com, CryptoQuant.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

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