Bitcoin’s high leverage ratio reaches new highs as narrow range limits profitability

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Bit­coin [BTC] just kicked off anoth­er week with its price restrict­ed with­in a nar­row range. What comes next and how soon will it come? These are some of the ques­tions that many investors are curi­ous about. Lat­est obser­va­tions such as a new high for BTC’s lever­age ratio may change the dynam­ics in the com­ing days.

One of Bitcoin’s most inter­est­ing obser­va­tions this week was the rise in its esti­mat­ed lever­age ratio. The lat­ter man­aged to reach a new his­toric high on 9 Octo­ber despite a bear­ish per­for­mance in the last five days. This obser­va­tion con­firmed that many BTC investors may have embraced lever­aged trades.

Source: Cryp­to­Quant

The high lever­age ratio was not that sur­pris­ing con­sid­er­ing that BTC was trad­ing close to its 2022 lows. Also, the nar­row price range trans­lat­ed to lim­it­ed prof­itabil­i­ty. This encour­aged many Bit­coin traders to exe­cute lever­aged posi­tions in the hopes of boost­ing their profits.

A double-edged sword

While traders stood to gain more through lever­age, they also took up high­er risks in case the trend went against them. The out­come may also have a siz­able impact on the price. For exam­ple, lever­aged long liq­ui­da­tions may trig­ger more sell pres­sure while lever­aged short liq­ui­da­tions may trig­ger more bull­ish pressure.

In the cur­rent sce­nario, BTC’s deriv­a­tives fund­ing rates were down sig­nif­i­cant­ly. Despite this, whales have been accu­mu­lat­ing since ear­ly Octo­ber, even though the impact on price was lim­it­ed. This may have encour­aged a high­er affin­i­ty for lever­age. The Pur­pose Bit­coin ETF was also accu­mu­lat­ed sub­stan­tial­ly from 6 October.

Source: Glassnode

The dor­mant cir­cu­la­tion met­ric dropped sig­nif­i­cant­ly indi­cat­ing that less sell­ing of HODLed BTC was tak­ing place. Despite this, a slight drop in the address­es with bal­ance greater than 1,000 BTC con­firmed sig­nif­i­cant sell pres­sure in the last two days.

Bull­ish demand in the spot mar­ket from around 3 Octo­ber aligned with the high­er lever­age. How­ev­er, it didn’t reflect demand in the deriv­a­tives and here’s why. Whales and insti­tu­tions are more like­ly to use the high­er esti­mat­ed lever­age ratio to dump more BTC in the mar­ket. Such an out­come would push down prices, allow­ing them to buy back at a dis­count­ed price.


Here’s AMBCrypto’s price pre­dic­tion for Bit­coin (BTC) for 2022


Investors should thus be on the look­out for out­flows from whales and insti­tu­tions. If these con­tin­ue accu­mu­lat­ing, then the bulls might get a chance to shine and poten­tial­ly break­out from the cur­rent range.

Investors should also expect to know the out­come by the end of the week. Mean­while, the cur­rent price lev­el man­aged to attract a lot of retail vol­ume. Accord­ing to a recent Glassnode analy­sis, address­es hold­ing more than 0.1 Bit­coin just reached a new all-time high of 3.84 million.

 



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