Bitcoin, the world’s leading cryptocurrency, has recently experienced an increase in its estimated leverage ratio, despite a decline in its value. Such a phenomenon indicates that investors are increasingly willing to borrow more funds to trade this asset. However, is this a sign of confidence and optimism, or perhaps a risky play?
In recent days, an increase in Bitcoin’s [BTC] estimated leverage ratio was noticeable, despite a drop in its price. Analysis results conducted by an anonymous analyst from CryptoQuant, BQYoutube, suggest that traders are increasingly using borrowed funds to trade this leading crypto asset.
When the BTC leverage ratio increases, it could be interpreted as a sign of traders’ optimistic attitude, who are confident about the continued appreciation of Bitcoin. However, it might also indicate a greater risk, as investors using high leverage are more exposed to liquidation in case of unfavorable market movements.
According to observations from a CryptoQuant analyst, the continuous increase in the estimated leverage ratio was closely related to the pace of increase in financing rates and reserves on cryptocurrency exchanges. Currently, the financing rate for Bitcoin stands at 0.0124% – according to data tracked by Coinglass, marking an increase of over 115% since October 7th.
Despite the decrease in BTC value in recent days, the increased number of transactions carried out using borrowed funds indicates a high level of optimism among investors, especially those making significant leveraged investment decisions. It seems many are betting on a price rebound and are willing to take the risk at any cost.
Further analysis by BQYoutube also indicates that the period under review was characterized by low trading volume on the primary Bitcoin market. This suggests that currently, there is no strong, organic demand for this asset at its current price. Investors interested in trading without using leverage are rarely making that choice.
Experts advise caution in making investment decisions until there’s a cooling down regarding the use of leverage and reserves on exchanges.
Another aspect that increases the level of risk is the growing interest in Bitcoin futures and options. Data from Santiment indicates that open interest was $6.14 billion, marking a 9% increase since the beginning of October.
Although the current level of open interest has been rising since September 2023, it hasn’t yet reached a level that could trigger mass liquidations. Nevertheless, the situation can change rapidly, so investors should be prepared for potential volatility.
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