Leverage in the Bitcoin Market Is Increasing Again

Based on data from analytics firm CryptoQuant, the estimated leverage ratio – calculated by dividing the global futures open interest by the number of coins held on exchanges – has recently risen to a level not seen since October 2023, reaching 0.2060.

After several months of stabilization under the 0.20 level, there appears to be an upward trend, indicating that traders are progressively leveraging more borrowed capital for their futures investments in a positive market climate. A lower ratio indicates a more conservative stance.

As a financial analyst, I observed that my projected leverage ratio reached its highest point post the downfall of Sam Bankman-Fried’s FTX exchange, which was previously the third-largest futures trading platform in late 2022. Subsequently, it followed a descending trend until December 2023.

Using leverage means traders can manage bigger investments with smaller amounts of money, amplifying potential gains as well as losses. It’s a tool that carries risks, such as insufficient margin levels leading to forced liquidations when markets shift unfavorably, which can contribute to market turbulence.

According to a recent statement by CryptoQuant, there’s an indication that more crypto investors are adopting higher levels of borrowing for derivative trading due to the upward trend seen in the Bitcoin Estimated Leverage Ratio.

$58,500 is the key level

As per Hyblock Capital’s analysis, approximately $58,500 worth of high-leverage liquidity is accumulated. When prices reach this point, volatility might increase significantly due to the existing low overall market liquidity. This implies that a single buy/sell order could substantially influence the current market rate.

According to Hyblock’s email to CoinDesk, strategic areas of high liquidity near the price point of $58,500 could potentially lead to heightened market fluctuations and present profitable chances for traders as Bitcoin approaches these prices.

In simpler terms, according to Hyblock, the total amount of trades that can be made on the combined market order book is still small, which could mean a rise in prices is possible. Additionally, the worldwide ratio between buyers and sellers stays optimistic, signaling strong underlying interest from both parties.