A quant has explained how the current large Bitcoin leverage ratio values can help bring a turnabout to the crypto’s price.
Bitcoin Leverage Ratio Rises To Values Greater Than During The ATH
As explained by an analyst in a CryptoQuant post, the massive leverage ratio right now might help BTC’s price reverse its trend.
The “Bitcoin leverage ratio” is an on-chain indicator that is defined as the open interest divided by the (derivative) exchange reserve.
Here, the “open interest” is a measure of the amount of futures contracts currently open in the derivatives market. While the exchange reserve tells us how much BTC is stored in exchange wallets right now.
The leverage ratio basically shows the amount of leverage used by users on average. The metric’s value helps us know whether Bitcoin investors are taking a high risk or a low risk.
When the value of this ratio moves up, it means investors are picking up more leverage as they are confident in their positions.
On the other hand, a decreasing trend of the indicator would mean investors are reducing risk, and closing off their positions.
Related Reading | Growth Of Bitcoin ETFs & Other Instruments Doesn’t Support Supply Shock Narrative
Now, here is a chart that shows the trend in the Bitcoin leverage ratio over the last few months:
The indicator seems to be rising in value | Source: CryptoQuant
As you can see in the above graph, the Bitcoin leverage ratio has been riding on an uptrend for a while, and now has values greater than those during the last price ATH.
The quant has marked peaks of the indicator on the chart and compared them with the BTC price. Apparently, whenever the metric has reached a top, the price of the crypto has reversed its trend.
Related Reading | Market Gets Cozy With Bitcoin Trapped? Why BTC Is Gearing Up For A Short Squeeze
The chart also shows another indicator, the RSI, which highlights whether BTC is currently overpriced or underpriced.
It seems like whichever way this metric has turned, the price has also reversed in the same direction. Looking at the chart, currently the leverage ratio seems to be hitting a peak and the RSI looks to be turning up. If there is indeed a pattern here, then the price of Bitcoin might change its direction towards the sky next.
BTC Price
At the time of writing, Bitcoin’s price floats around $48.7k, down 2% in the last seven days. The below chart shows the trend in the value of the crypto over the past five days.
BTC's price surged up a few days ago, but it has since started moving sideways again | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com