Bitcoin Market Leverage Surges, Signaling Potential Volatility

Mars Finance reports that leverage in the Bitcoin market is on the rise, suggesting traders are seeking greater risk exposure and could inject volatility into the market.

According to data from analytics firm CryptoQuant, the estimated leverage ratio, which measures the ratio of open interest in futures contracts to exchange-held coins, has climbed to 0.2060, its highest level since October 2023. This increase follows months of consolidation below 0.20 and indicates that traders are increasingly using borrowed funds to amplify their futures positions, suggesting a risk-on sentiment in the market. Lower ratios typically signify a more cautious approach from traders.

The estimated leverage ratio peaked following the collapse of Sam Bankman-Fried's FTX exchange, which was the world's third-largest futures platform in late 2022. Since then, leverage had been declining until December 2023.

Bitcoin's high-leverage liquidity is concentrated around the $58,500 mark. As a result, volatility is likely to intensify once the price approaches this level, especially given the overall low market liquidity. This means buy and sell orders could have a significant impact on the prevailing market price.