Ethereumย (ETH) Leverage Ratio Indicates Increased Market Risk
An analyst has notedย that the Ethereumย (ETH) leverage ratio hasย risen, suggesting higher volatility in the assetโs price. The estimated leverage ratio (ELR) is a metric that compares Ethereumย (ETH) open interest to derivative exchange reserves. Open interest tracks the total number of positions open in the Ethereumย (ETH) futures market, while derivative exchange reserves measure the tokens held in centralized derivative exchange wallets.
The ELR indicates the level of leverage being used by traders in the futures market. A high ELR value impliesย that open interest is significantly higher than exchange reserves, indicating a preference for high leverage contracts. Conversely, low ELR values suggest a lack of risk-taking and low leverage positions.
Trend in Ethereumย (ETH) ELR and Recent Increase
A chart shows the trend in Ethereumย (ETH) ELR inย theย previous few years, including a collapse in August 2020 that caused a decrease in leverage. Nonetheless, the indicator has recently started to rise again and asย ofย now stands at 23%. Althoughย while this value is not as high as before the collapse, it is still wholeย lotย of. Huobi, Derbit, and OKX have a disproportionately high amount of leverage compared to the wider sector.
Probable Impact on Volatility
Andย once ELR increases, volatility tends to follow suit. Therefore, Ethereumย (ETH) couldย be entering a period of increased turbulence based on this indicator. It remains to be seen how this will impact the price of ETH.
Ethereumย (ETH) Price Recovery
After declining to $1,500 at the beginning of the week, Ethereumย (ETH) has since recovered and is now trading over $1,600.
Hot Take: Increased Leverage Ratio Raises Concerns About Ethereumย (ETH) Volatility
Data shows that the Ethereumย (ETH) leverage ratio has been on the rise, indicating probable increased volatility for the assetโs price. The estimated leverage ratio (ELR) compares open interest in the Ethereumย (ETH) futures market to derivative exchange reserves. A higher ELR suggests aย bigger preference for high-leverage contracts, while lower values indicate less risk-taking. Recent data shows an uptick in the ELR, whichย might lead to heightened market turbulence. Traders should closely monitor these developments as they could impact Ethereumโs price movement.
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