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On-chain information reveals each the Bitcoin leverage ratio and the futures open curiosity has spiked up not too long ago, an indication which will become bearish for the crypto’s value.

Bitcoin Estimated Leverage Ratio And Open Interest Surge Up

As identified by an analyst in a CryptoQuant, the BTC futures market appears to have been heating up throughout the previous day.

To perceive the leverage ratio, two different metrics have to be checked out first. They are the “open interest” and the “derivatives exchange reserve.”

The open interest is an indicator that measures the overall quantity of contracts presently open on the Bitcoin futures market. The metric contains each brief and lengthy positions.

The different indicator, the derivatives alternate reserve, tells us in regards to the whole variety of cash presently current within the wallets of all derivatives exchanges.

Now, the previous metric divided by the latter provides us the “estimated leverage ratio.” What this indicator signifies is the typical quantity of leverage utilized by customers on derivatives exchanges.

Here is a chart that reveals the pattern within the Bitcoin leverage ratio, in addition to the open curiosity, over the previous month:

The worth of the 2 metrics has sharply risen not too long ago | Source: CryptoQuant

As you’ll be able to see within the above graph, each the Bitcoin leverage ratio and the open curiosity have spiked up over the last 24 hours as the worth of the coin has additionally noticed a surge.

This implies that proper no longer solely is the typical leverage very excessive, but additionally the overall variety of positions are fairly huge.

The chart additionally contains information for the funding rate, one other indicator that tells us in regards to the ratio between lengthy and brief positions. It appears like presently its worth is optimistic, suggesting that longs are extra dominant.

Historically, such a setup has typically result in greater volatility out there. It is as a result of a excessive leverage means any value transfer will result in a large number of liquidations, which can additional enlarge the transfer in query.

This stretched value transfer in flip results in extra liquidations. When liquidations cascade collectively on this manner, the occasion is named a “squeeze.”

Since there are extra lengthy positions out there proper now and the leverage is excessive, an extended squeeze may occur. If it does happen, the most recent bullish momentum for Bitcoin could also be slowed down.

BTC Price

At the time of writing, Bitcoin’s value floats round $23.9k, up 3% up to now week.

Looks like the worth of the crypto has spiked up over the last day | Source: BTCUSD on TradingView

Featured picture from Natarajan sethuramalingam on Unsplash.com, charts from TradingView.com, CryptoQuant.com