On-chain data shows that Bitcoin investors have been apprehensive about taking risk of late as the leverage ratio has remained low in recent days.
Bitcoin’s leverage ratio remains low for the past few days
As an analyst noted in a CryptoQuant post, investors have not taken much risk since the crypto price surge a few days ago as leverage in the market is low right now.
A relevant indicator here is the ‘open rate’, which shows the total number of Bitcoin futures contracts currently open on all derivatives exchanges.
The ‘estimated leverage ratio’ is a measure defined as the ratio between this outstanding interest and the total number of coins present on all derivatives exchanges (exchange reserve).
What this ratio tells us is the average amount of leverage that each Bitcoin futures investor is currently using.
When the value of the indicator is high, it means that users are taking a lot of risk at the moment. Such values can lead to higher price volatility.
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On the other hand, low values of the ratio indicate that investors are not currently using much leverage because they want to avoid risk.
Here is a chart showing the trend in the Bitcoin leverage ratio over the past few days:
It seems that the value of the stat is currently low | Source: CryptoQuant
As you can see in the chart above, the Bitcoin leverage ratio was high a few days ago, but the sharp upward trend in the crypto’s price brought it back down as it liquidated shorts.
Since then, the value of the indicator has remained at these low levels. Open interest, on the other hand, is still high, meaning investors are still opening new positions in the market.
Related literature | Time to be scared? Bitcoin Index Hits Most Greedy Point Since Peak
However, these new positions have low average leverage, as the ratio suggests. This shows that lately investors have been insecure about the cryptocurrency and opted to take less risk.
The chart also shows the funding rate curve, an indicator that tells us about the ratio of longs to shorts in the market. Currently, the stat looks positive, meaning there are more long positions in the market.
At the time of writing, Bitcoin price is hovering around $47k, up 10% from the past week. The chart below shows the trend in the price of the coin over the past five days.
The price of BTC seems to have moved sideways in recent days | Source: BTCUSD on TradingView Featured image from Unsplash.com, Charts from TradingView.com, CryptoQuant.com