Attention to Volatility in Cryptocurrencies! This Metric is at its Peak in Bitcoin!

This metric, which has reached its peak in Bitcoin (BTC), the flagship of the cryptocurrency markets, can cause high volatility!

On-chain data shows that the leverage of the leading cryptocurrency Bitcoin (BTC) has risen to an all-time high. This could be a sign that the market could be heading towards high volatility.

Peak Metric in Bitcoin

According to data from data analytics platform CryptoQuant, the leverage ratio in cryptocurrency markets increased while the funding ratio remained neutral. The estimated leverage ratio is known as an indicator that measures the ratio between the Bitcoin open interest and the derivative foreign exchange reserve. The metric described is the average amount of leverage currently used by investors in the Bitcoin futures market. When the value of the indicator is high, it means that users are using too much leverage. Historically, such values are said to lead to higher volatility in the cryptocurrency price.

On the other hand, the low value of the metric may be an indication that investors are not taking a high risk in the current position because they are not using much leverage. Bitcoin's estimated leverage ratio has risen significantly recently, reaching a new ATH. This means that traders are highly leveraged.

High Volatility

The reason why overleveraged markets have often become highly volatile in recent periods is that such conditions can lead to mass liquidations becoming more likely. Any sudden fluctuation in price during highly leveraged periods can cause many contracts to be liquidated at the same time. But the problem doesn't end there; the liquidations mentioned further exacerbate the price movement that caused it, and hence can lead to more liquidations.

Bitcoin funding rates can give us an idea of which way a possible squeeze could go. CryptoQuant notes that this metric currently has a neutral value, implying that the market is evenly split between short and long-term investors. Therefore, it is difficult to say which way a possible contraction might lean in the near future. In addition, Bitcoin volatility has continued at fairly low levels in recent weeks. However, with such high leverage accumulation, it may only be a matter of time before a volatile price comes into play.

Source: cryptoquant