Bitcoin’s Leverage Ratio Hits Yearly High — Implications for the Market

Key Takeaways

• This year, Bitcoin’s leverage ratio has climbed to the highest level, indicating risky trader bets.
• Despite that, liquidation in the market is much lower than during the trade wars.
• Analysts expect Bitcoin price to rebound after the recent consolidation below the $100,000 mark.

Bitcoin’s leverage ratio has hit a yearly high, rising as high as $0.26 on Feb. 13, according to data from CryptoQuant. This milestone happened amid the cryptocurrency’s struggles to rebound to $100,000.

The leverage ratio is calculated as the open interest divided by its coin reserves. This metric tells one how much leverage traders are using. When the ratio increases, more investors take on higher leverage risks in the derivatives market.

A decrease, on the other hand, indicates skepticism in high-risk positions. Here’s what the rising leverage ratio could mean for Bitcoin’s price and the broader crypto market.

High Leverage, Low Liquidations

Bitcoin’s reaching its highest leverage ratio signals that traders are increasingly using borrowed funds to amplify their positions. This surge could make traders profitable if the BTC price moves in the direction of their bets.

However, it also raises the stakes for the market and exposes them to higher risks of liquidation if the market turns against their positions.

Despite the massive exposure, the total liquidations in the market in the last 24 hours are under $200 million. This starkly contrasts what the market experienced on Feb. 3 as BTC price plunged below $93,000.

During that period, the total liquidation in the market surpassed $2 billion, triggered by Donald Trump’s trade wars. Therefore, the lower liquidation figure suggests the market might have stabilized despite the high leverage.

But amid the amplified volatility, even a small Bitcoin price movement could lead to significant liquidations.

Furthermore, crypto analyst Axel Adler Jr. pointed out that the influx of new futures positions will likely contribute to increased volatility.

Will Retail Demand Fuel the Next Bitcoin Price Rally?

Meanwhile, Bitcoin’s price has traded around the $97,000 region over the past seven days. With the price down 10% from its all-time high, the cryptocurrency struggles with resistance near $100,694.

However, some analysts remain optimistic, expecting the price to break through and eventually resume its uptrend.

One analyst who agrees with this position is a pseudonymous trader, caueconomy. According to him, Bitcoin’s price could rebound as he expected retail investor demand to grow and end the consolidation period.

“After another long period of normalization caused by price sideways movement, retail demand is close to growing again, something that could have a positive impact on bitcoin,” The analyst noted .

Like caueconomy, analyst Michaël van de Poppe also believes BTC could soon rally to a new high. According to van de Poppe, the recent price decline is could be a good entry that could drive toward a new all-time high as shown in the image above.