Bitcoin Nears Record Low Leverage Amid Potential ETF Approval
Summary:
Bitcoin is on the verge of reaching an all-time record low leverage ratio. Despite a nearly 200% rise in price this year, there is limited interest in Bitcoin as 2022 wraps up. Major crypto exchange Binance is leading this decline. Analysts highlight this as uncommon, especially considering the potential approval of the first Bitcoin spot price exchange-traded fund by the United States within weeks. However, the low leverage and dropping open interest might lead to a decrease in Bitcoin’s value, as observed in previous cycles.
Bitcoin is on the brink of achieving record leverage lows, which one analyst describes as quite extraordinary. Bitcoin's price has risen almost 200% this year, yet there is minimal enthusiasm for the cryptocurrency as we approach the end of 2022, according to data from blockchain analytics company, Glassnode.
Binance, a major cryptocurrency exchange, is at the forefront of this decrease of Bitcoin leverage. At the moment, Bitcoin's leverage ratio along with cash and crypto-margined open interest are generally subdued at current rates. The leverage ratio is even on the threshold of reaching an unprecedented low. According to James Van Straten, a data researcher at CryptoSlate, an online news site focused on blockchain and cryptocurrency, this is highly rare, especially since the U.S could in approximately three weeks green-light the first Bitcoin spot price exchange-traded fund (ETF).
Van Straten stresses the importance of understanding key metrics to grasp the digital asset market's constant progression. He highlights one such metric, the Estimated Leverage Ratio (ELR), which gives an idea of the leverage in the market. Van Straten notes that the ELR is nearly at a historical trough, a similar incident observed only twice before. This suggests a major decrease in market leverage, hinting towards a cautious strategy from futures market traders.
This unusual event highlights changing perspectives towards the approval of the much-anticipated ETF. Last month, Bitcoin saw a quick run-up due to the hype surrounding this event. Now, as suggested by open interest, investors seem to adopt a 'wait and see' stance, albeit the chances for ETF approval seem almost certain.
Van Straten explains that open interest, which has almost hit its lowest level for the year, is significantly advantageous for Bitcoin. However, he acknowledges that not all exchanges are seeing the same trends. Deribit, a prominent cryptocurrency exchange, is currently witnessing significant leverage. On the flip side, Binance, which plays a key role in the digital asset exchange space, continues its downward slide, nearing a level not seen since December 2022.
Meanwhile, BitQuant, a popular analyst and crypto commentator, finds the dwindling excitement surrounding ETF puzzling. "The majority are not aware of the impending Bitcoin ETF approval which is due in 22 days, while the rest doubt its realization despite Bitwise's campaign efforts,'' he stated on X (formerly Twitter).
Giving a heads up, Van Straten warned that, in the past, troughs in the Estimated Leverage Ratio have often resulted in a downturn in Bitcoin’s value. This was observed during important periods such as May 2021 following China's mining ban, and November 2022 in the aftermath of the FTX collapse. During these periods, Bitcoin’s value fell until it found a new local bottom. Such patterns point towards an interrelation between low ELR and adjustments in Bitcoin's market value.
Readers should bear in mind that this article does not provide investment advice or recommendations. Every investment and trading decision involves risk, thus individuals should carry out their own investigations before making a choice.
Published At
12/19/2023 5:27:44 PM
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