Over the past week, Bitcoin (BTC) has been gaining attention from investors from all walks of life. From short-term traders to institutional players. This can be seen in the strong performance of the spot Bitcoin ETF last week. Likewise, the Bitcoin derivatives market appears to be witnessing an increase in risk-taking behavior by traders, as evidenced by recent on-chain data.
The Bitcoin market has now entered the ‘danger zone’ — what’s happening?
Leverage is a tool that allows traders to control significant positions with relatively small amounts of capital. Although leverage helps traders and investors increase their potential returns, it also exposes them to significant risk, especially during times of market volatility.
advertisement
In a recent Quicktake post on the CryptoQuant platform, an analyst using the pseudonym Crazzyblockk revealed the growing use of leverage among Bitcoin market participants. These on-chain observations are based on the open interest of futures contracts and the Expected Leverage Ratio (ELR) indicator, which measures the exchange’s coin reserve ratio.
Crazzyblockk noted that holdings of some large stablecoins are also taken into account when calculating the expected leverage ratio. “This is based on the notion that stablecoins have been increasingly used as collateral for derivatives transactions in recent years,” the analyst added.
The expected leverage ratio serves as an important indicator in assessing the amount of leverage market participants use in derivatives trading. According to CryptoQuant analysts, the ELR indicator has been showing a noticeable upward trend over the past few months, which indicates that open interest is increasing and exchange reserves are decreasing, especially for Bitcoin.
Moreover, the Bitcoin derivatives market now appears to have entered risk territory due to the rapid increase in leverage used by market participants. According to the Quicktake post, this means the market is vulnerable to spontaneous price movements in either direction. Therefore, short-term traders may want to approach the market cautiously.
Has BTC price established a local top?
As of this writing, the price of Bitcoin is around $68,400, unchanged from the previous day. The top cryptocurrency is up more than 8% in the past week, according to data from CoinGecko.
In a separate Quicktake post, one analyst said Bitcoin price may be ready for a brief correction after printing local highs. This analysis is based on the increasing unrealized profits of Bitcoin traders in recent weeks.
Unrealized profits for BTC traders have surpassed $7 billion, according to CryptoQuant data, suggesting potential selling pressure in the near future. And when investors are sitting on significant unrealized profits, the temptation to take profits increases and the risk of price declines increases.
Source: NewsBTC.com