The Bitcoin derivatives market has hit a significant milestone as the estimated leverage ratio for the asset has skyrocketed to its highest point of the year, according to the latest data from CryptoQuant.
This metric, which measures the ratio of open interest to coin reserves on exchanges, indicates that market participants are increasingly utilizing leverage. The upward trend implies that investors are adopting greater risks by “using higher leverage,” a factor that could have a substantial effect on Bitcoin’s price.
Related Reading
The Consequences Of High Leverage On Bitcoin’s Market
The rise in Bitcoin’s estimated leverage ratio underscores the expanding use of leverage among investors in the derivatives market. Leverage enables traders to borrow capital to enhance their exposure to Bitcoin without having to possess the full amount of capital initially.
While this can magnify profits during market rallies, it simultaneously heightens the risk of considerable losses if the market shifts against their positions.
A high leverage ratio can often present a mixed bag for the crypto market. On one hand, it might suggest that investors are growing more optimistic about Bitcoin’s potential for a price increase, especially if a market breakout occurs.
Conversely, if Bitcoin’s price keeps declining, it could trigger a wave of liquidations as overleveraged positions are compelled to close, intensifying the downward pressure.
This trend of increasing leverage has attracted attention from various market analysts. CryptoQuant analyst EgyHash noted that the estimated leverage ratio hitting its peak this year could lead to heightened market volatility.
The higher the leverage, the more reactive the market becomes to price fluctuations, as even minor moves can instigate liquidations and cause cascading effects.
Insights From Analysts Regarding Bitcoin’s Future
Meanwhile, Bitcoin’s price continues to encounter hurdles, particularly its struggle to surpass key resistance levels.
The cryptocurrency has faced challenges in sustaining momentum, and despite the uptick in leverage within the market, Bitcoin recorded only a 0.2% increase in the last 24 hours, alongside a 2.1% decrease over the past week. Consequently, the asset is currently trading below $57,000, with a value of $56,871.
As Bitcoin’s price remains under pressure, several leading crypto analysts have shared their views on the future of the cryptocurrency.
One of these analysts, CryptoBullet, recently drew comparisons between Bitcoin’s current cycle and past bull markets.
In a post on X, CryptoBullet emphasized the parallels between the current market and Bitcoin’s 2013 cycle, mentioning how the Stochastic Relative Strength Index (Stoch RSI) has displayed patterns similar to those witnessed during the 2013 surge.
Related Reading
CryptoBullet’s analysis indicates that Bitcoin could be entering the final stage of its current cycle, with the possibility of a “Wave 5” price rally that could elevate the asset to new heights.
#Bitcoin 1M Big Picture
This cycle differs from the 2017 or 2021 cycles. IMO it resembles 2013 more, and Stoch RSI confirms it 👇
This cycle’s Stoch RSI peaked in March, and during this 6-month consolidation in Wave 4, the Stoch RSI dropped lower than in 2016-2017 or in H2 2020-2021… https://t.co/Ni9NHHKxis pic.twitter.com/nreQcpAIFP
— CryptoBullet (@CryptoBullet1) September 10, 2024
While the analyst recognized that this cycle is not identical to those of 2017 and 2021, the technical indicators suggest that a higher high on Bitcoin’s price chart could be forthcoming.
Featured image created with DALL-E, Chart from TradingView
