After rising towards the $100,000 level just days into the novel year, Bitcoin’s price will likely end in January, a stark contrast to how the month started. The flagship cryptocurrency fell to a multi-month low of around $81,500 on Thursday, January 29, and overall market sentiment has deteriorated over the past few weeks.
Heading into the weekend, the price of Bitcoin cooled slightly, rebounding above $93,000 on Friday, January 30. Interestingly, the latest data on the chain suggests that the market leader is only one step away from another piercing price move.
BTC is preparing for a cascade of violent liquidation
In the Quicktake post on the CryptoQuant platform, CryptoOnchain common insight into the current state of the Bitcoin price on the chain. According to market data, Bitcoin’s estimated leverage ratio (ELR) has seen a significant escalate on Binance, the world’s largest cryptocurrency exchange, as the price undergoes a recent correction.
For context, the estimated leverage ratio is an on-chain metric that tracks the ratio between the exchange’s (in this case, Binance’s) open interest and reserve. This indicator measures the average amount of leverage used by traders in a given market or exchange.
A higher ELR signals higher market risk, suggesting that tiny price movements can lead to significant liquidations. According to CryptoQuant data, CryptoOnchain highlighted that Bitcoin’s estimated leverage ratio recently increased to a critical level of 0.188 as the price dropped to around $81,500, indicating that open interest is extremely high compared to the exchange’s reserves.
Additionally, CryptoOnchain stated that the discrepancy between rising leverage and falling prices is a classic signal of a “bearish divergence” in the derivatives market. “This indicates that despite price weakness, investors are aggressively increasing their leverage positions,” the chain expert added.
Moreover, CryptoOnchain revealed that when a market experiences significant over-leverage during a price correction, it means that investors are either “buying the dip” with high leverage or increasingly taking tiny positions. According to a market analyst, this setup usually precedes a “rapid liquidation cascade.”
Overall, CryptoOnchain stated that the market is currently in a high stress zone, with the combination of peak leverage and low prices suggesting that a “tightening” is imminent. However, the analyst explained that the direction of the next piercing move depends on the dominant side of the market (bulls or bears).
Bitcoin price at a glance
At the time of writing, BTC is trading at around $84,200, reflecting an escalate of almost 1% over the last 24 hours.
Featured image from iStock, chart from TradingView
