Bitcoin Leverage Ratio Suggests More Decline May Be Coming

A quant explains why the current high Bitcoin leverage ratio values may mean that more price drop could be coming soon. Current Bitcoin Leverage Ratio Is At High Values As explained by an analyst in a CryptoQuant post, the current BTC leverage ratio has high values, and if past pattern is anything to go by, a correction may be coming to the price soon. The “estimated leverage ratio” is an indictor that’s defined as the value of the Bitcoin open interest divided by the reserve of all exchanges. In simpler terms, what this metric tells us is the amount of leverage that an average user is making use of at the moment. When the value of this indicator rises, it means investors are taking on more risk as they are increasing the leverage on their positions. During such a trend, the volatility in the price of BTC may also go up. At sufficiently high values of the ratio, the market may be considered overleveraged, and a liquidation squeeze could follow to wipe out the excess leverage. Related Reading | Market Re-Enters Extreme Fear Territory As Bitcoin Declines To $36k In a liquidation squeeze, a big swing in the price causes a cascade of futures liquidations that amplify the price move further. Now, here is a chart that shows the trend in the Bitcoin leverage ratio over the past year: Looks like the value of the indicator has been high recently | Source: CryptoQuant In the above graph, the quant has highlig...