Analysis

Bitcoin Leverage Ratio Hits New ATH, Is More Price Decline Coming?

On-chain information reveals Bitcoin leverage ratio has hit a brand new all-time excessive (ATH). This could imply {that a} price correction may quickly comply with.

Bitcoin Leverage Ratio Reaches New Highs, Correction Incoming?

As identified by an analyst in a CryptoQuant post, the BTC leverage ratio has made a brand new ATH just lately. This will increase the potential for a correction occurring quickly to flush out all the surplus leverage.

The “all exchanges estimated leverage ratio” is an indicator that estimates how a lot leverage is utilized by Bitcoin buyers on derivatives exchanges, on common.

There are two associated metrics right here. The first is the “open interest,” which measures the full quantity of futures contracts at present open within the market. And the opposite is the “exchange reserve” that tells us how a lot BTC is saved in derivatives trade wallets.

The worth of the leverage ratio is calculated because the open curiosity divided by the trade reserve. With the assistance of this metric, it turns into doable to inform whether or not buyers are at present taking low danger or excessive danger.

When the worth of the indicator rises, it means buyers are taking up extra leverage. High values of the metric could imply the market is at present over-leveraged, which may result in greater volatility in Bitcoin.

Related Reading | Quant Explains How Large Bitcoin Leverage Ratio Can Help Turnaround Price

On the opposite hand, low values of the indicator indicate there isn’t a lot leverage within the market proper now. Here is a chart that reveals the development within the BTC leverage ratio over the previous few months:

Looks just like the indicator has just lately hit a brand new ATH | Source: CryptoQuant

As you possibly can see within the above graph, the Bitcoin leverage ratio has been on the rise recently. Just just lately the metric additionally achieved a brand new all-time excessive.

Related Reading | Growth Of Bitcoin ETFs & Other Instruments Doesn’t Support Supply Shock Narrative

The quant believes that such excessive values of the ratio could imply {that a} correction within the price of the coin may quickly come, wiping away all the surplus leverage with it.

BTC Price

At the time of writing, Bitcoin’s price floats round $50.9k, up 11% within the final seven days. Over the previous thirty days, the crypto has stacked 6% in losses.

The under chart reveals the development within the price of BTC during the last 5 days.

Bitcoin Price Chart

BTC's price surged up a couple of days in the past, however has since moved sideways | Source: BTCUSD on TradingView

Bitcoin has established a footing above the $50k price stage previously few days, however it’s unclear in the meanwhile when the coin may retest greater ranges. If the leverage ratio is something to go by, one other correction may quickly wipe away this restoration as a substitute.

Featured picture from Unsplash.com, charts from TradingView.com, CryptoQuant.com

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