Data shows that ethereum's leverage ratio has continued to see strong growth recently, something that could lead to volatility in the price of eth.
ethereum Estimated Leverage Ratio Has Been Setting New Highs Recently
As explained by an analyst at CryptoQuant Quicktake mailethereum's estimated leverage ratio has been on an upward trajectory for a while now. The “estimated leverage ratio” here refers to an indicator that calculates the ratio between eth open interest and derivatives exchange reserve.
The first of these, the Open Interest, measures the total number of derivatives positions related to the asset that are currently open on all centralized exchanges, and the second, the Derivatives Exchange Reserve, tracks the number of tokens that investors have deposited on derivatives platforms.
When the value of the estimated leverage ratio increases, it means that the open interest increases relative to the derivatives exchange reserve. This trend implies that, on average, users opt for a greater amount of leverage on their positions.
On the other hand, the indicator's decline suggests that risk appetite may be declining among traders as they are decreasing the amount of leverage attached to their positions.
Now, here is a chart showing the trend in ethereum's estimated leverage ratio over the last year and a half:
<img data-recalc-dims="1" decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2025/01/Ethereum-Leverage-Ratio-Continues-to-Rise-Sharply-What-It-Means.png" alt="ethereum Leverage Ratio” width=”1280″ height=”720″/>
The value of the metric appears to have been sharply going up over the last few months | Source: CryptoQuant
As shown in the chart above, ethereum's estimated leverage ratio has been trending upward over the past few months, implying that investors are increasingly willing to take on greater risks.
Historically, a large amount of leverage in the market has generally led to volatile cryptocurrency price action. The reason behind this is the fact that massive liquidation events are likely to occur in such an environment.
During a massive liquidation event (popularly known as a squeeze), a sudden swing in price triggers a large number of liquidations at once. These liquidations feed back into price movement, causing even more liquidations.
Since ethereum's estimated leverage ratio is at extreme levels, the chances of traders encountering liquidation are high. However, it is unclear which side of the market would imply a possible contraction in the near future.
Long-term investors getting caught up in the event would naturally lead to a bearish outcome for eth, while a short squeeze could start a wave of bullish price action. It only remains to be seen how the volatility arising from high leverage, if any, would end up affecting the asset.
eth price
At the time of writing, ethereum is trading around $3,300, down around 1% from last week.
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Looks like the price of the coin has been trading sideways over the last few days | Source: ETHUSDT on TradingView
Dall-E Featured Image, CryptoQuant.com, TradingView.com Chart
