Bitcoin Estimated Leverage Ratio Spikes To New High — Fresh Volatility Ahead?

Going into the weekend, the price of Bitcoin has somewhat cooled off, recovering above the $93,000 level on Friday, January 30. Interestingly, the latest on-chain data suggests that the market leader is only on the verge of another violent price movement.

For context, the Estimated Leverage Ratio is an on-chain metric that tracks the ratio between open interest and the reserve of an exchange (Binance, in this case). This metric measures the average amount of leverage used by the traders in a particular market or exchange. 

A higher ELR signals a higher market risk, suggesting that small price movements could lead to significant liquidations. According to data from CryptoQuant, CryptoOnchain highlighted that the Bitcoin Estimated Leverage Ratio recently spiked to a critical level of 0.188 when the price fell to around $81,500, indicating that the Open Interest is exceptionally high relative to the exchange’s reserves.

Furthermore, CryptoOnchain shared that the divergence between rising leverage and falling prices is a classic “bearish divergence” signal in the derivative market. “It indicates that despite the price weakness, traders are aggressively increasing their leverage positions,” the on-chain expert added.

Overall, CryptoOnchain concluded that the market is currently in a high-tension zone, with the combination of peak leverage and low prices suggesting that a “squeeze” is imminent. The analyst, however, clarified that the direction of the next violent movement depends on the dominant side (bulls or bears)  of the market. 

As of this writing, the price of BTC stands at around $84,200, reflecting a nearly 1% jump in the past 24 hours.