During the last week, Bitcoin (BTC) has captured the interest of a diverse range of investors, from quick-turn traders to institutional stakeholders. This is evident in the robust performance of spot Bitcoin ETFs over the previous week. Additionally, the Bitcoin derivatives market seems to be experiencing a rise in risk-taking activities among traders, as indicated by recent on-chain metrics.
Bitcoin Market Now In ‘A Risk Zone’ — What’s Happening?
Leverage allows traders to control significant positions with a relatively limited amount of capital. While using leverage can enhance potential gains for traders and investors, it simultaneously exposes them to substantial risks, especially during periods of high market volatility.
In a recent Quicktake analysis on the CryptoQuant platform, an analyst known by the alias Crazzyblockk highlighted a growing usage of leverage among Bitcoin market participants. This on-chain insight utilizes the Estimated Leverage Ratio (ELR) metric, which assesses the relationship between open interest in futures contracts and the coin reserves located on exchanges.
Crazzyblockk pointed out that the reserves of certain large-cap stablecoins are also factored into the Estimated Leverage Ratio. “This conclusion stems from the observation that stablecoins have increasingly become collateral for derivative trading in recent years,” the analyst remarked.
The Estimated Leverage Ratio is a crucial gauge for evaluating the extent of leverage utilized by market participants in derivative trading. According to the CryptoQuant analyst, there has been a noticeable increase in the ELR metric over the last few months, indicating a rise in open interest coupled with dwindling reserves on exchanges, particularly for Bitcoin.
Moreover, the Bitcoin derivatives market has seemingly entered a risk zone due to the sharp rise in leverage being employed by market actors. As noted in the Quicktake post, this situation suggests that the market is vulnerable to sudden price fluctuations in either direction. Therefore, short-term traders should exercise caution when navigating the current landscape.
Has BTC Price Established A Local Top?
At present, the price of Bitcoin is approximately $68,400, showing little to no significant change over the past day. Data from CoinGecko indicates that the leading cryptocurrency has risen over 8% in the past week.
In another Quicktake analysis, an analyst indicated that Bitcoin’s price may be preparing for a temporary correction after reaching a local peak. This conclusion is derived from the increasing non-realized profits of Bitcoin traders in recent weeks.
According to data from CryptoQuant, the unrealized profits of BTC traders have exceeded $7 billion, signaling potential selling pressure in the near term. The risk of a price pullback becomes more pronounced when investors hold such considerable unrealized gains, as the temptation to realize profits may grow.
