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Bitcoin leverage ratio reaches new highs


According to CryptoQuant, the projected leverage ratio for Bitcoin (BTC) reached a new all-time high Friday night. More indicators suggest a rise in leveraged interest, but liquidations have remained low.

While the Bitcoin price has fallen off a cliff in the last 24 hours, the estimated leverage ratio has reached an all-time high of 0.224, according to on-chain analytics resource CryptoQuant. The metric works by dividing the open interest of exchange by its coin reserve. The result reveals the average amount of leverage used by traders.

A larger ratio, such as 0.22, suggests that more investors are exposing themselves to high leverage risks. Lower values, on the other hand, indicate that traders are becoming more risk conservative in their derivative trading. Since June 2019, the blue line on the graph below has been trending upwards.

Estimated leverage ratio for Bitcoin. Source: CryptoQuant

FTX, Huobi, and Binance are leading the way

Leverage trading is available on most cryptocurrency exchanges, with FTX, Huobi, and Binance leading the way. They’ve all agreed to limit the amount of leverage available to traders in order to avoid large-scale liquidations like the one that occurred in September of last year, when $3.5 billion in longs and shorts were liquidated.

Nonetheless, it hasn’t hindered exchanges’ attempts to make leverage trading more accessible to a wider audience. The CEO of the FTX exchange, Sam Bankman-Fried, announced on Twitter that his “FTX 20x Leveraged Bitcoin Index” had been listed on the Vienna Stock Exchange. Austrian daredevils will soon have access to up to 20x leveraged BTC trading, according to the Wienerborse.

Meanwhile, despite a 10% price reduction in the last three days, according to coinglass.com statistics (formerly ByBt), just half a billion dollars worth of liquidations took occurred across all exchanges, far less than the $600 million worth of liquidations that took place in minutes in March last year.

It’s strange to see the leverage ratio reach new highs and liquidations remain stable, all while the price falls. Is it possible that the market will become much more volatile?

In a tweet, analyst Will Clemente summed it up nicely: “Could yet resolve to the upside.” “All I know for sure is that this party has only just begun”.

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