Bitcoin’s Surging Leverage Points to Potential Overheating in the Crypto Market: IntoTheBlock
The analytics firm IntoTheBlock has raised concerns about the excessive leverage being used in the Bitcoin (BTC) market, suggesting that it could be a sign of overheating. According to Lucas Outumuro, head of research at IntoTheBlock, funding rates have reached their highest levels since 2021.
Signs of Overheating
- Funding rates on Binance and Bybit have spiked to 0.06% and 0.09% respectively, which translates to an annualized cost of 93% and 168% for going long on Bitcoin.
- The high funding rates indicate a heavily skewed market towards long positions.
- The average 90-day return for the top 20 crypto-assets (excluding stablecoins) listed on IntoTheBlock is 103%, with the worst performer gaining only 28%.
Outumuro believes that these bullish derivatives trends should serve as a warning sign for the crypto market, suggesting that it may be overheated. Additionally, he highlights that the total debt issued through Aave v3 on Ethereum has more than doubled this year, and approximately $700 million worth of Wrapped Bitcoin has flowed into Aave.
At the time of writing, Bitcoin is trading at $68,462, experiencing a nearly 4% decline in the past 24 hours.
Hot Take: Exercise Caution in an Overheated Market 🚨
The surge in leverage being utilized in the Bitcoin market raises concerns about potential overheating. Here’s what you need to know:
High Funding Rates
Funding rates on Binance and Bybit have reached their highest levels since 2021, indicating an excessively bullish market sentiment. These rates translate to annualized costs of 93% and 168% for going long on Bitcoin, respectively.
Market Returns
The average 90-day return for the top 20 crypto-assets (excluding stablecoins) listed on IntoTheBlock is a staggering 103%. Even the worst-performing asset among them has gained 28%. Such high returns may suggest an overheated market.
Increased Debt Issuance
The amount of debt issued through Aave v3 on Ethereum has more than doubled this year. Additionally, approximately $700 million worth of Wrapped Bitcoin has flowed into Aave. This influx of debt and collateral further adds to the concerns surrounding an overheated market.
In light of these developments, it is crucial for investors to exercise caution and carefully assess the risks associated with trading in an overheated market. While Bitcoin continues to experience volatility and price fluctuations, it is important to make informed decisions based on thorough analysis and risk management strategies.
By
By
By