Data shows the Ethereum Estimated Leverage Ratio has shot up to extreme levels recently. Here’s what this could imply for the asset’s price.
Ethereum Leverage Ratio Appears To Have Been Rising Recently
As pointed out by an analyst in a CryptoQuant Quicktake , the ETH Estimated Leverage Ratio has continued its uptrend recently. The “Estimated Leverage Ratio” here refers to an indicator that keeps track of the ratio between the Ethereum Open Interest and Derivatives Exchange Reserve.
The Open Interest is a measure of the total amount of derivatives positions related to ETH that are currently open on all exchanges, while the Derivatives Exchange Reserve keeps track of the amount of ETH sitting in the wallets of all derivatives platforms.
When the value of the Estimated Leverage Ratio rises, it means positions on exchanges are growing at a faster rate than the collateral inflows. Such a trend suggests the investors are opting for a higher amount of leverage on average.
On the other hand, the indicator going down implies the appetite for risk is decreasing among the derivatives market users, as they are taking on a lower amount of leverage.
Now, here is a chart that shows the trend in the Ethereum Estimated Leverage Ratio over the past year or so:
The value of the metric appears to have been going up over the last few months | Source:
As displayed in the above graph, the Ethereum Estimated Leverage Ratio had reached high levels earlier in the year, but its value had seen a plunge as the asset’s price had gone through its crash in late July/early August.
Over the last couple of months, however, the indicator has seen a resurgence, with its value now completely recovering back to the same highs as before. This suggests that the investors have been opening leveraged positions on the market.
Historically, an overleveraged market has generally resulted in volatility for the ETH price. This is because of the fact that a mass liquidation event, popularly called a squeeze, is probable to occur whenever the derivatives users are taking on high risk.
Earlier in the year, the increase in the Ethereum Estimated Leverage Ratio had come alongside a surge in the price, which implies the leveraged positions cropping up had been long ones.
Usually, a squeeze is more likely to affect the side of the market that’s more dominant, which may be why the overleveraged market from back then had culminated into a long squeeze.
The recent increase in the metric has come while Ethereum has been displaying an overall bearish trajectory, so the new leveraged positions may be short ones. If this is indeed the case, then the coin could end up witnessing a short squeeze alongside a rally.
ETH Price
Ethereum had seen a break above $2,700 earlier, but the coin appears to have seen a pullback as it’s now trading around $2,600.
Looks like the price of the coin has gone through a retrace over the past day | Source:
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com
Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.
Read more
Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.
In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.
Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.
Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..
Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.
Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.
As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.
Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.
Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.
Close
Disclaimer: The information found on NewsBTC is for educational purposes
only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any
investments and naturally investing carries risks. You are advised to conduct your own
research before making any investment decisions. Use information provided on this website
entirely at your own risk.
