Bitcoin Futures Market Remains Heated As Leverage Stays High

Keshav Verma

2 years ago

3 mins read

Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Created by industry experts and meticulously reviewed

The highest standards in reporting and publishing

How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

Morbi pretium leo et nisl aliquam mollis. Quisque arcu lorem, ultricies quis pellentesque nec, ullamcorper eu odio.

On-chain data shows the Bitcoin futures market has remained heated recently as leverage taken on by investors has been quite high.

Bitcoin Estimated Leverage Ratio Declines A Bit, But Still Remains Very High

Following the rise in derivative activities, the leverage in the market hit a new all-tine high recently, as noted by an analyst in a CryptoQuant post.

The “all exchanges estimated leverage ratio” is an indicator that’s defined as the ratio between the open interest and the derivative exchange reserve.

When the value of this metric is high, it means the average investor is currently using a large amount of leverage on exchanges. Such a trend suggests holders are willing to take high risk currently.

On the other hand, low values of the indicator imply holders are going for a low-risk approach at the moment as they aren’t using much leverage.

Now, here is a chart that shows the trend in the 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 above graph, the Bitcoin estimated leverage ratio had been rising in recent weeks and hit a new all-time just a while ago.

However, since then the indicator’s value has come down a bit. This decrease was instigated by the recent temporary rush of volatility in the market due to the CPI release, which flushed out a large amount of leverage.

Nonetheless, the indicator’s value has remained pretty high despite the decline, meaning there is still plenty of leverage to go around in the market.

Historically, overleveraged markets have usually ended in very sharp price moves as liquidations tend to occur quite easily in such environments.

Such liquidations amplify the price move that caused them, leading to even more liquidations. This event where liquidations cascade together 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 might go in, the quant comments: “With retail traders overly bullish compared to institutional traders, the risk-reward does not look good for the bulls.”

BTC Price

At the time of writing, Bitcoin’s price floats 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

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.

Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.