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The Bitcoin derivatives market has reached a notable milestone, as the estimated leverage ratio for the asset has surged to its highest level of the year, latest data from CryptoQuant shows.
This metric, which tracks the ratio of open interest to coin reserves on exchanges, signals increased leverage use among market participants. The growing trend suggests that investors are taking on more risk by “employing higher leverage,” which could significantly impact Bitcoin’s price.
The Impact Of High Leverage On Bitcoin’s Market
The increase in Bitcoin’s estimated leverage ratio highlights the growing use of leverage among investors in the derivatives market. Leverage allows traders to borrow funds to increase their exposure to Bitcoin without needing to hold the full amount of capital upfront.
While this can amplify profits during periods of market upswings, it also increases the risk of significant losses if the market moves against the position.
Bitcoin Estimated Leverage Ratio. | Source: CryptoQuant
A high leverage ratio can often be a double-edged sword for the crypto market. On the one hand, it may indicate that investors are increasingly confident in Bitcoin’s potential for an upward move, especially if the market sees a breakout.
On the other hand, if Bitcoin’s price continues to decline, it could lead to a wave of liquidations as overleveraged positions are forced to close, exacerbating the downward pressure.
This trend of rising leverage has drawn attention from various market analysts. CryptoQuant analyst EgyHash pointed out that the estimated leverage ratio reaching its highest point this year could lead to increased volatility in the market.
The higher the leverage, the more sensitive the market becomes to price swings, as even small moves can trigger liquidations and create cascading effects.
Analysts Weigh In On Bitcoin Future
Meanwhile, Bitcoin’s price continues to face challenges, particularly its inability to break above key resistance.
The cryptocurrency has struggled to maintain momentum, and despite the increased leverage in the market, Bitcoin has experienced a mere 0.2% increase over the past 24 hours and a 2.1% drop over the past week. As a result, the asset is now trading below $57,000, with a current price of $56,871.
While Bitcoin’s price remains under pressure, several prominent crypto analysts have shared their perspectives on what lies ahead for the cryptocurrency.
Among them is the analyst known as CryptoBullet, who recently compared Bitcoin’s current cycle to previous bull markets.
In a post on X, CryptoBullet highlighted the similarities between the present market and Bitcoin’s 2013 cycle, noting that the Stochastic Relative Strength Index (Stoch RSI) has shown patterns that mirror those seen during the 2013 rally.
CryptoBullet’s analysis suggests that Bitcoin could enter the final phase of its current cycle, with the potential for a “Wave 5” price surge that could push the asset to new highs.
#Bitcoin 1M Big Picture
This cycle doesn’t look like the 2017 or 2021 cycle. IMO it’s more like 2013 and Stoch RSI confirms it 👇
This cycle Stoch RSI peaked in March and during this 6-Month Consolidation in Wave 4 the Stoch RSI went 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 acknowledged that this cycle differs from those of 2017 and 2021, the technical indicators point to the possibility of a higher high on Bitcoin’s price chart shortly.
Featured image created with DALL-E, Chart from TradingView
