The Bitcoin leverage ratio is currently showing a sell signal, indicating that the market could turn bearish, at least in the near term.
Bitcoin Leverage Ratio Says Now Is Not A Good Time To Buy Now
As an article from CryptoQuant pointed out, the estimated leverage ratio indicates that it may not be the best time to buy BTC.
The estimated Bitcoin leverage ratio on all exchanges is an indicator calculated by taking the open interest ratio divided by the reserves of all exchanges.
Estimated leverage ratio = Open interest ÷ Amount of reserve
For those new to futures trading, “open interest” refers to the total number of contracts held by users at the end of a trading day. The reserve of all exchanges is naturally the total amount of Bitcoin held in the wallets of all exchanges.
The leverage ratio indicator can show how much leverage is used by an average trader. When the value of the metric increases, it means that traders become more and more confident in their positions.
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Likewise, a downward trend in the value of the indicator implies the opposite. With the help of these trends, it becomes possible to know whether the traders are taking high risk or low risk.
Now here’s what the latest Bitcoin leverage ratio chart looks like:
The BTC leverage ratio slightly moves up | Source: CryptoQuant
As shown in the chart above, the movement of the indicator can be used to indicate where the BTC price might be heading next.
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Lower leverage ratio generally signals a good buy point, while its rising value has suggested otherwise throughout the year.
Currently, the value of the metric is increasing, which means that now is not a good time to buy more Bitcoin, and the coin may soon observe a short-term correction.
As of this writing, the price of Bitcoin is around $ 50.9,000, up 6% over the past 7 days. Over the past month, the crypto has gained 13% in value.
The chart below shows the coin’s price trends over the past three months:
Bitcoin plunges down | Source: BTCUSD on TradingView
After struggling just below the $ 50,000 price range for a while, BTC appears to have finally gained ground above the mark.
Yesterday Bitcoin nearly hit $ 53,000 in a steep rise, but has since fallen significantly as the price now floats below $ 51,000.
If the leverage ratio is anything to go by, BTC could turn bearish and see a downtrend soon. However, this will likely only be a short term correction as other indicators still show the crypto to be bullish in the long term.