Over the past week, Bitcoin (BTC) has received attention from all levels of investors; From short-term traders to institutional players. This can be seen in the strong performance of spot Bitcoin ETFs in the previous week. Likewise, the Bitcoin derivatives market appears to be witnessing increased risk-taking behavior on the part of traders as shown in recent on-chain data.
The Bitcoin market is now in a “danger zone” – what is happening?
impact It is a tool that allows traders to control large positions with a relatively small amount of capital. While leverage helps traders and investors enhance their potential profits, it also opens them up to significant risks, especially when market volatility is high.
In a recent Quicktake post on the CryptoQuant platform, an analyst with the pseudonym Crazzyblockk open There has been an increase in the use of leverage among Bitcoin market participants. This on-chain observation is based on the Estimated Leverage Ratio (ELR) metric, which measures the ratio of open interest in futures contracts to currency reserves on exchanges.
Crazzyblockk noted that the reserves of some large-cap stablecoins are also taken into account when calculating the estimated leverage ratio. “This is based on the concept that stablecoins have increasingly been used as collateral for derivatives trading in recent years,” the analyst added.
The estimated leverage ratio is a valuable indicator in evaluating the amount of leverage used by market participants to trade derivatives. According to a CryptoQuant analyst, the ELR metric has seen a noticeable rise over the past few months, indicating increasing open interest and dwindling exchange reserves, especially Bitcoin.
Furthermore, it appears that the Bitcoin derivatives market has now entered a danger zone due to the sharp increase in leverage used by market participants. According to the Quicktake post, this means that the market is vulnerable to spontaneous price movements in any direction. Therefore, short-term traders may want to approach the market with caution.
Has BTC price created a local top?
As of this writing, Bitcoin’s price is around $68,400, reflecting no significant change in the past day. According to data from CoinGecko, the leading cryptocurrency has risen by more than 8% in the past week.
In a separate Quicktake post, an analyst said open That Bitcoin price may be ready for a short correction after printing a local high. This analysis is based on the increasing unrealized profits of Bitcoin traders in recent weeks.
According to CryptoQuant data, unrealized profits for BTC traders have exceeded $7 billion, indicating potential selling pressure in the near future. The risk of price declines increases when investors sit on such large unrealized gains, as there is an increased temptation to take profits.
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