According to recent statistics, Ethereum derivative market participants have been using a lot of leverage, so suggesting a period of more volatility for the cryptocurrency.
An analyst has seen a recent increase in the Ethereum Estimated Leverage Ratio (ELR), per a CryptoQuant Quicktake article. Tracking the link between Ethereum’s Open Interest and Exchange Reserve, this ratio has been climbing.
Exchange Reserve shows the whole number of ETH tokens kept in exchange wallets; Open Interest counts the entire number of active derivatives positions linked to ETH across all centralized exchanges.
Ethereum Leverage Surges
Rising ELR suggests that Open Interest is expanding more quickly than the Exchange Reserve, implying average increasing leverage by investors. On the other hand, a drop in the ratio would suggest that deleveraging helps market players to lower their risk exposure.
Recent graphs show that the Ethereum ELR has had a notable rise in line with increasing interest in spot exchange-traded funds (ETFs) preceding their approval. ETH’s price also surged during this time, which set ideal conditions for speculative bitcoin investments.
The ELR keeps rising even as Ethereum’s price has bottomed off, suggesting that investors are still keen to take on more risk and gamble on future price moves notwithstanding ETF clearance.A high leverage ratio has historically been linked to more price volatility since heavily leveraged positions are vulnerable to major liquidation events. Such occasions could aggravate price swings, hence increasing the volatility.
Given Ethereum’s price running sideways lately and leverage positions building, a major price movement in either direction could set off mass liquidations, thus magnificuating the initial price change.With over 18% gains, ETH looks to conclude May, and market watchers are closely monitoring to see if the present trend in the ELR will cause a violent future market movement.
