Over the past week, bitcoin (btc) has enjoyed attention from all levels of investors; from short-term traders to institutional players. This can be seen in the strong performance of bitcoin spot ETFs over the past week. Similarly, the bitcoin derivatives market appears to be witnessing increased risk-taking behavior by traders, as recent on-chain data shows.
bitcoin market is now in 'a risk zone' – what's happening?
Leverage It is a tool that allows traders to control substantial positions with a relatively small amount of capital. While leverage helps traders and investors increase their potential profits, it also exposes them to significant risks, especially when market volatility is high.
In a recent Quicktake post on the CryptoQuant platform, an analyst with the pseudonym Crazzyblockk revealed that there has been increased use of leverage among bitcoin market participants. This on-chain observation is based on the Estimated Leverage Ratio (ELR) metric, which measures the relationship between open interest in futures contracts and coin reserves on exchanges.
Crazzyblockk noted that the reserves of some large-cap stablecoins are also considered in the calculation of the estimated leverage ratio. “This is based on the concept that stablecoins have been increasingly used as collateral for derivatives trading in recent years,” the analyst added.
The estimated leverage ratio serves as a valuable indicator for evaluating the amount of leverage used by market participants to trade derivatives. According to the CryptoQuant analyst, the ELR metric has seen a notable rally in recent months, indicating growing open interest and declining foreign exchange reserves, particularly bitcoin.
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Furthermore, the bitcoin derivatives market appears to have now entered a risk zone due to the sharp increase in leverage used by market participants. According to the Quicktake post, this implies that the market is susceptible to spontaneous price movements in either direction. Therefore, short-term traders may want to approach the market with caution.
Has btc price established a local high?
At the time of writing, the price of bitcoin stands at around $68,400, which does not reflect any significant changes in the last day. According to data from CoinGecko, the leading cryptocurrency rose more than 8% last week.
In a separate Quicktake post, an analyst revealed that bitcoin price could be preparing for a brief correction after printing a local high. This analysis is based on the increasing unrealized profits of bitcoin traders in recent weeks.
According to data from CryptoQuant, btc traders' unrealized profits have surpassed $7 billion, suggesting possible selling pressure in the near future. And the risk of a price pullback increases when investors are left with such significant unrealized gains, as there is greater temptation to take profits.
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