In the latest report from blockchain analytics firm CryptoQuant, Binance currently has the best leverage ratio as the cryptocurrency bull market prepares to take off.
Despite the significant overall price collapse last week, investors and market analysts still expect massive gains across many digital assets over the next year in line with historical data. TThe leverage ratio of central exchanges is a crucial factor before this very potential bullish period that promises high market activity.
Binance and OKX offer a low leverage ratio where other CEX exchanges show potential liquidity risk
In the cryptocurrency market, the leverage ratio represents the amount of an exchange’s open interest compared to its reserve assets. A high leverage ratio means there is more trading activity compared to reserves, which increases the risk of liquidity problems in volatile market conditions.
Evaluating the leverage ratio of centralized exchanges became even more important after the collapse of the FTX exchange in 2022. The high leverage ratio was a major contributor to the demise of the exchange as there were not enough (zero) reserve assets to support trading activity.
Therefore, monitoring leverage ratios is crucial to assessing the financial health of exchanges. During a bull market, increased trading activity can magnify leverage risks, especially if exchanges do not adequately back their positions with reserves.
With the rise of cryptocurrency on the horizon, CryptoQuant Reports Binance has emerged among other exchanges with strong reserves of Bitcoin, Ethereum, and USDT relative to trading activity.
The Malta-based exchange features a low leverage ratio that increased slightly from 12.8 in December 2023 to December 2024, despite a 2.6x increase in Bitcoin open interest (from $4.45 billion to $11.64 billion). Besides Binance, OKX, a relatively smaller exchange, also has a low leverage ratio which indicates a conservative risk management system.
However, other exchanges like Gate.io, ByBit, and Derbit offer much higher leverage ratios of up to 106, 86, and 32, respectively. This report notes that the open interest of Bitcoin and Ethereum on these exchanges is well above reserves and may be vulnerable to liquidity issues in the long term.
Crypto market overview
At press time, the total cryptocurrency market is now worth $3.26 trillion, reflecting a 3.34% increase in the past day. Bitcoin remains the market leader with dominance levels of 57.1%. The flagship cryptocurrency is trading at US$97,258 after a slight rebound from a mid-week price collapse after the US Federal Reserve announced the possibility of reducing the initial four interest rate cuts planned in 2025 to two due to expected higher inflation.
Featured image from Webopedia, chart from Tradingview