Bitcoin Leverage Ratio Surges Up, More Volatility Incoming?

Keshav Verma

1 year ago

3 mins read

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On-chain data shows the Bitcoin estimated leverage ratio has shot up recently, suggesting that more volatility may be coming soon for the crypto.

Leverage In The Bitcoin Market Has Started Going Up Recently

As pointed out by an analyst in a CryptoQuant post, the cryptocurrency may face more volatility in the near future.

The “all exchanges estimated leverage ratio” is an indicator that’s defined as the open interest divided by the reserve of all derivatives exchanges. In simpler terms, what this metric tells us is the amount of leverage taken by users on average.

When the value of the ratio is high, it means users are taking on a lot of risk at the moment. An increasing amount of leverage can turn the market more volatile.

The reason for this is that a large amount of leverage implies a higher risk of liquidation. During any big price swings, a huge amount of liquidations can be triggered at once, cascading together and causing further price action.

On the other hand, low values of the indicator suggest there isn’t much leverage in the market right now as users seek to avoid taking much risk.

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

Looks like the value of the indicator has surged up recently | Source: CryptoQuant

As you can see in the above graph, the Bitcoin estimated leverage ratio has shot up in value over the past couple of weeks.

The metric reached its last high just before the LUNA and UST collapse. Afterwards, as the price crashed down, so did the indicator’s value due to a large amount of liquidations taking place.

The quant in the post explains that this recent trend formation looks similar to back in December 2021. Then, the price observed a surge as the leverage ratio also recovered from the plunge.

The analyst believes a similar scenario can play out now as well. However, if the pattern truly follows, then any price rise that may follow will only be temporary as was the case back in December.

BTC Price

At the time of writing, Bitcoin’s price floats around $29.1k, down 4% in the last seven days. Over the past month, the crypto has lost 24% in value.

The below chart shows the trend in the price of the coin over the last five days.

It seems like the price of the coin has slumped down over the past 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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