Over the past week, Bitcoin (BTC) has attracted interest from investors of all stripes; from short-term investors to institutional players. This can be seen from the powerful performance of spot Bitcoin ETFs in the previous week. Similarly, the Bitcoin derivatives market appears to be witnessing increased risk-taking by traders, as recent on-chain data shows.
The Bitcoin Market Is Now in the ‘Risk Zone’ – What’s Happening?
Influence is a tool that allows traders to control significant positions with a relatively compact amount of capital. While leverage helps traders and traders boost their potential returns, it also exposes them to significant risk, especially when market volatility is elevated.
In a recent Quicktake post on the CryptoQuant platform, an analyst nicknamed Crazzyblockk revealed that there has been an increased employ of leverage among Bitcoin market participants. This on-chain observation is based on the Estimated Leverage Ratio (ELR) metric, which measures the ratio of futures open interest to coin reserves on exchanges.
Crazzyblockk noted that reserves of some large-cap stablecoins are also taken into account when calculating the estimated leverage ratio. “This is based on the idea that stablecoins have been increasingly used as collateral in derivatives trading in recent years,” the analyst added.
The estimated leverage ratio serves as a valuable indicator in assessing the amount of leverage used by market participants in trading derivatives. According to analyst CryptoQuant, the ELR has seen a significant boost over the past few months, signaling growing open interest and failing currency reserves, particularly Bitcoin.
Moreover, the Bitcoin derivatives market has now apparently entered the risk zone due to a keen boost in leverage used by market participants. According to the Quicktake post, this means that the market is susceptible to unplanned price movements in either direction. Therefore, short-term investors may want to approach the market with caution.
Has the BTC price set a local high?
At the time of writing, Bitcoin is trading at around $68,400, which does not reflect any significant changes over the past day. According to CoinGecko data, the most vital cryptocurrency increased by over 8% last week.
In a separate Quicktake analyst post revealed that Bitcoin price may be preparing for a compact correction after printing a local high. This analysis is based on the increasing unrealized profits of Bitcoin traders in recent weeks.
According to CryptoQuant data, BTC traders’ unrealized profits have exceeded $7 billion, suggesting potential selling pressure in the near future. The risk of a price pullback increases when investors focus on such significant unrealized gains because there is greater temptation to profit.
