Bitcoin Bearish Signal: Leverage Ratio Is Still Very High

On-chain information shows the Bitcoin leverage ratio inactive has a precise precocious value, a motion that has usually proven to beryllium bearish for the crypto successful caller months.

Bitcoin Exchange Leverage Ratio Has Been Going Up In Recent Weeks

As pointed retired by an expert successful a CryptoQuant post, the BTC each exchanges leverage ratio is inactive rather high, suggesting that the crypto could inactive spot further downtrend.

The “leverage ratio” is an indicator that is defined arsenic the ratio betwixt the unfastened involvement and the each derivatives speech reserve.

Here, the “open interest” is simply a measurement of the full magnitude of Bitcoin futures positions presently unfastened successful the derivatives market.

And the “derivatives speech reserve” is conscionable the full fig of coins presently stored successful wallets of each derivatives exchanges.

What the leverage ratio tells america is however overmuch leverage users are taking connected mean successful the BTC futures marketplace close now.

When the worth of this indicator is high, it means users are taking a ample magnitude of hazard successful the signifier of leverage astatine the moment. An excess of leverage usually leads to higher volatility successful the market.

Related Reading | Bitcoin On-Chain Data: Miners Deposit Big To Derivatives Exchanges

On the different hand, little values of the ratio tin effect successful lesser comparative volatility successful the crypto’s terms since users aren’t taking overmuch risk.

Now, present is simply a illustration that shows the inclination successful the Bitcoin each exchanges leverage ratio implicit the past year:

The worth of the metric seems to person been rather precocious successful caller days | Source: CryptoQuant

As you tin spot successful the supra graph, whenever the Bitcoin leverage ratio has deed a steep worth during the past respective months, some the indicator and the coin’s terms has subsequently plunged down.

Mass leverage flushes similar these are called “liquidation squeezes.” During specified events, liquidations cascade unneurotic and amplify the terms determination that triggered the squeeze.

Related Reading | Why Bitcoin Is Undervalued According To This Expert’s “Conservative” Model

Since the terms moved successful the aforesaid absorption arsenic the compression successful these instances, they were each examples of a “long squeeze.”

It looks similar the ratio’s worth is erstwhile again precocious close now. If a akin inclination arsenic successful the past fewer months follows this clip arsenic well, past a agelong compression whitethorn beryllium coming  soon and taking Bitcoin successful for different plummet.

BTC Price

At the clip of writing, Bitcoin’s terms floats astir $20.5k, up 4% successful the past week. Over the past month, the crypto has mislaid 30% successful value.

Looks similar the worth of the crypto has been going down implicit the past fewer days | Source: BTCUSD connected TradingView Featured representation from mana5280 connected Unsplash.com, charts from TradingView.com, CryptoQuant.com