{"id":1252,"date":"2023-04-28T02:43:07","date_gmt":"2023-04-28T06:43:07","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/crypto\/leverage-is-declining-the-bitcoin-market-heres-why-that-is-bullish-for-the-btc-price\/"},"modified":"2023-04-28T02:43:08","modified_gmt":"2023-04-28T06:43:08","slug":"leverage-is-declining-the-bitcoin-market-heres-why-that-is-bullish-for-the-btc-price","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=1252","title":{"rendered":"Leverage is Declining the Bitcoin Market \u2013 Here\u2019s Why That is Bullish For the BTC Price"},"content":{"rendered":"
\n

A measure of leverage in the Bitcoin market just fell to its lowest since late 2021, a sign that volatility inducing speculators are increasingly being washed out of the market, meaning that the world\u2019s largest cryptocurrency by market capitalization may be in for calmer waters ahead.<\/p>\n

Crypto analytics firm CryptoQuant\u2019s \u201cEstimated Leverage Ratio\u201d (ELR) just fell to 0.195, its lowest since December 2021.<\/p>\n

That\u2019s down from a peak of 0.4 just before the collapse of cryptocurrency exchange FTX last November, which was the catalyst for Bitcoin hitting its 2022 bear market lows in the $15,000s.<\/p>\n

CryptoQuant calculates its ELR by dividing the dollar value of open perpetual Bitcoin future contract positions by the number of Bitcoin tokens being held by derivatives exchanges (where traders open those perpetual Bitcoin future positions).<\/p>\n

A lower number means that traders on derivatives exchanges are opening less leveraged positions proportional to the number of tokens they have on the exchange, essentially implying there is less speculation in the market.<\/p>\n

Lower Leverage Could Be Bullish for Bitcoin<\/strong><\/h2>\n

As can be seen above, the relationship between CryptoQuant\u2019s ELR and the BTC price is weak.<\/p>\n

When Bitcoin was at record highs in late-2021, the ELR was around current levels, before the ELR then peaked when the Bitcoin price was around the $20,000 mark.<\/p>\n

But a lower ELR could nonetheless still be bullish for the Bitcoin price, as when the market gets excessively leveraged, this can trigger volatility (as positions are stopped out).<\/p>\n

Higher volatility can deter investors. A lower volatility profile ahead could be a key factor in attracting new retail and institutional investors to the space.<\/p>\n

The drop in the ELR comes after wild liquidation-induced swings in the Bitcoin price on Wednesday.<\/p>\n

And lower volatility ahead seems to be just what investors are expecting, according to Bitcoin options market pricing.<\/p>\n

Implied volatility according to At-The-Money (ATM) Bitcoin options expiring in 7, 30, 90 and 180 days are all in the 45-55% range, which is close to historic lows.<\/p>\n

Dominant derivative exchange Deribit\u2019s Bitcoin Volatility Index (DVOL) is also near historic lows at current levels around 55.<\/p>\n

Alternative metrics of leverage in the Bitcoin market have also been in decline.<\/p>\n

The ratio of the dollar value of open interest in the Bitcoin futures market to Bitcoin\u2019s market capitalization was last around 0.0176.<\/p>\n

That\u2019s according to data from The Block, which showed open interest in Bitcoin futures at around $9.7 billion on Wednesday versus Bitcoin\u2019s closing market cap of around $550 billion.<\/p>\n

On the first of November 2022, when Bitcoin\u2019s closing market cap was just over $393 billion and future open interest was around $11.56 billion, this ratio was at a much higher level of close to 0.03.<\/p>\n

The washing out of speculators and Bitcoin \u201ctourists\u201d has historically been consistent with the market finding a low and then proceeding to recover, before price momentum-related FOMO (fear of missing out) then attracts a new wave of speculators and \u201ctourists\u201d.<\/p>\n

That\u2019s why on-chain analysts like to monitor metrics such as Realized HODL Ratio, which captures the balance between BTC wealth held in 1-week old coins versus 1-2 year old coins.<\/p>\n

As can be seen in the above chart presented by crypto analytics firm Glassnode, this ratio tends to bottom in line with bear market bottoms, indicating that weaker conviction speculators and tourists have been wiped out and a higher proportion of high conviction longer-term HODLers remain.<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A measure of leverage in the Bitcoin market just fell to its lowest since late 2021, a sign that volatility inducing speculators are increasingly being washed out of the market, meaning that the world\u2019s largest cryptocurrency by market capitalization may be in for calmer waters ahead. Crypto analytics firm CryptoQuant\u2019s \u201cEstimated Leverage Ratio\u201d (ELR) just […]<\/p>\n","protected":false},"author":1,"featured_media":1253,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[243],"tags":[83],"class_list":["post-1252","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-crypto","tag-featured"],"yoast_head":"\nLeverage is Declining the Bitcoin Market \u2013 Here\u2019s Why That is Bullish For the BTC Price | iFintechWorld<\/title>\n<meta name=\"description\" content=\"A measure of leverage in the Bitcoin market just fell to its lowest since late 2021, a sign that volatility inducing speculators are increasingly being\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=1252\" \/>\n<meta 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