Data Shows Bitcoin Investors Afraid To Take Risk As Leverage Remains Low

Keshav Verma

1 year ago

3 mins read

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On-chain data shows Bitcoin investors have been afraid to take risk recently as the leverage ratio has remained low in the last few days.

Bitcoin Leverage Ratio Remains Low In Past Few Days

As pointed out by an analyst in a CryptoQuant post, investors haven’t taken much risk since the surge in the crypto’s price a few days back as leverage in the market is low at the moment.

A relevant indicator here is the “open interest,” which shows the total amount of Bitcoin futures contracts currently open on all derivatives exchanges.

The “estimated leverage ratio” is a metric that’s defined as the ratio between this open interest and the total amount of coins present on all derivatives exchanges (exchange reserve).

What this ratio tells us is the average amount of leverage that each Bitcoin futures investor is currently making use of.

When the value of the indicator is high, it means users are taking on a lot of risk right now. Such values can result in higher price volatility.

On the other hand, low values of the ratio indicate investors aren’t using much leverage currently as they look to avoid risk.

Now, here is a chart that shows the trend in the Bitcoin leverage ratio over the past few days:

Looks like the value of the metric is low at the moment | Source: CryptoQuant

As you can see in the above graph, the Bitcoin leverage ratio had a high value a few days back, but the sharp uptrend in the crypto’s price brought it back down as it liquidated shorts.

Since then, the indicator’s value has remained at these low levels. The open interest, on the other hand, is still at a high value, implying investors have still been opening new positions in the market.

These new positions, however, have low average leverage attached to them as the ratio suggests. This shows that investors have been unsure about the crypto recently, opting to take less risk.

The chart also shows the curve for the funding rates, an indicator that tells us about the ratio of longs and shorts in the market. Currently, the metric seems to be positive, which means there are more long positions in the market.

BTC Price

At the time of writing, Bitcoin’s price floats around $47k, up 10% in the past week. The below chart shows the trend in the price of the coin over the last five days.

BTC's price seems to have moved sideways in the last few days | Source: BTCUSD on TradingView

Featured image from 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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