In a dramatic week for Bitcoin price action, traders are keen to capitalize, hitting a new all-time high for the leverage ratio.
The estimated leverage ratio for Bitcoin (BTC) hit a new all-time high last night according to CryptoQuant. Further metrics point to growing leveraged interest, but liquidations have remained relatively low.
According to on-chain analytics resource CryptoQuant, while the Bitcoin price fell off a cliff over the past 24 hours, the estimated leverage ratio reached 0.224, an all-time high. The metric works by dividing exchanges’ open interest by their coin reserve. The result shows how much leverage traders are using on average.
A higher ratio, such as 0.22, indicates that more investors are taking high leverage risks. Conversely, lower values mean traders are increasingly risk-averse in their derivative trading. The blue line on the graph below, it’s trended upwards since June 2019.
Estimated leverage ratio for Bitcoin. Source: CryptoQuant
Most cryptocurrency exchanges offer leverage trading with FTX, Huobi and Binance leading the way. They have all agreed to reduce the amount of leverage available to traders in order to prevent mass liquidation events, such as the one seen in September last year when $3.5 billion longs and shorts were liquidated.
Nonetheless, it hasn’t slowed exchanges plans to bring leverage trading to a wider audience. Sam Bankman-Fried, CEO of FTX exchange, tweeted that his “FTX 20x Leveraged Bitcoin Index” has been listed on the Vienna Stock Exchange. According to the Wienerborse, Austrian daredevils will soon be able to access up to 20x leveraged BTC trades.
Meanwhile, despite a circa 10% price drop over the past three days, a mere half a billion dollars worth of liquidations took place across all exchanges according to coinglass.com data (formerly ByBt), less than the $600 million worth of liquidations that took place in minutes in March last year.
It’s eery to observe the leverage ratio hit all-time highs and liquidations remain steady, all while the price stoops lower. Could more volatility be in the cards?
Analyst Will Clemente summed it up adequately in a tweet. “Could still resolve to the upside. All I know for sure is that this party is just getting started.”