Bitcoin leverage ratio reaches new highs
Bitcoin is experiencing a bearish market trend that has seen its price drop below $40,000. And in the past few days, there’s been a massive Bitcoin derivatives liquidation. In fact, based on information from Coinglass, over $500 million worth of Bitcoin has been liquidated in the last couple of days.
But despite the heavy liquidation, data indicates that more traders and investors are still venturing into the Bitcoin market. This was pointed out by a Chinese journalist, Colin Wu that goes by the moniker Wu Blockchain on Twitter. He noted that data from Crypto Quant, a blockchain analytics firm indicated that investors were taking on high leverage and increasing their exposure.
CrytoQuant cited that the Estimated Leverage Ratio (ELR) of Bitcoin on crypto exchanges has reached 0.226 and continues to surge. This increase in ELR shows that more traders and investors are increasing their leverage and exposure. On the contrary, a value lesser than 0.22 would translate to investors behind more risk-averse while trading their derivatives. And with that bitcoin will not backdown now with the obstacles bitcoin overcome it can simply just pas through this.
What does this mean for Bitcoin’s dominance in the market?
The Estimated Leverage Ratio (ELR) can be interpreted as a ratio of open interest divided by the resource of an exchange. The ELR shows the daily percentage of leverage used by investors and traders. The ELR is analyzed by documenting its trend and movement.
Looking at its latest trend, the ELR is currently in an upward trend which indicates strong investors’ confidence in Bitcoin. According to CryptoQuant, the ELR rising in value shows a lot of traders are taking high leverage risk in Bitcoin trade. Furthermore, when the current ELR trend is higher than the previous, it indicates that investors are very confident in holding their position.
This increase in ELR also shows that investors are quite confident a bullish trend will occur soon, hence, they are buying the dip. Information acquired from BitInfoCharts also shows that whale wallets are presently buying Bitcoin at a cheap price. To this end, Wu noted that the 33rd largest Bitcoin address has bought additional 3,000 Bitcoins during this dip. The 34th largest Bitcoin wallet also bought about 1450 Bitcoin.
However, even though there’s increased exposure and dip-buying indicating bullish preparation for Bitcoin, a lot of analysts believe we are in a full-fledged bear market. They believe the bears could pull Bitcoin’s price to a trading price of $10,000 by the end of the year.
Incredibly, Bitcoin experienced a drastic fall in price on Wednesday just after the U.S Federal Reserve Bank published the minutes of its December meeting. The publication revealed that the central bank is planning to amend its monetary policy by increasing interest rates and decreasing the number of bonds it holds. The publication had a major impact not only on the crypto market but also on the stock and Forex market. An additional macroeconomic situation that may be influencing Bitcoin’s bearish trend is the internet blackout happening in Kazakhstan. This has caused the more than 12% of the Bitcoin mining network to go offline further causing the hash rate to plummet.
Reaction from cryptocurrency exchanges
A lot of crypto exchange platforms came to the general consensus to decrease the amount of leverage available to investors. This is to protect investors from themselves as it will help prevent mass liquidation like the one witnessed last year September. September last year, investors in the crypto space lost $3.5 billion to liquidation in both long and short positions.
However, while these exchanges have decided to reduce the amount of leverage, plans haven’t slowed down to bring leverage trading to a larger audience. The CEO of FTX exchange, Sam Bankman-Fried, tweeted that the Vienna Stock Exchange has listed his “FTX 20x Leveraged Bitcoin Index”. Wienerborse has also affirmed that up to 20x leveraged BTC trades will soon be made available to Austrian daredevils.
On the other hand, even though an approximately 10% drop in price was experienced, over500,000 dollars worth of liquidation was recorded. This liquidation took place across all exchange platforms and according to data obtained from coinglass.com, these liquidations took place just within a few minutes.
Will Clemente adequately summarize current happenings in the crypto market in a tweet? He asserted that Bitcoin could still switch to the upside but one thing he is certain about is that the Bitcoin party’s just beginning.