The leverage used in the Bitcoin (BTC) futures market has fallen significantly in the past several days. This indicates that traders are generally uncertain about where BTC is heading in the near term.
Estimated leverage on Binance. Source: CryptoQuant
What is leverage and why is this metric crucial for Bitcoin market sentiment?
In the Bitcoin futures market, traders can borrow up to 125 times of their initial capital to trade Bitcoin.
This allows traders to enter into massive Bitcoin positions that are often much larger than the capital that they have.
During uptrends, traders tend to overleverage their positions because they anticipate bigger upside price movements. But, when the market becomes choppy and extremely volatile, traders become fearful.
If the leverage used in the Bitcoin futures market drops, it simply means that traders are borrowing less capital to trade BTC. It shows a sign of fear, which is likely prompting traders to enter into safer positions with a lower risk of liquidation.
There are a few reasons why traders could be fearful in the current phase of the market. First, BitcoinTitle: Peak fear? Bitcoin futures leverage gets reset by this week’s wild price swings
Sourced From: cointelegraph.com/news/peak-fear-bitcoin-futures-leverage-gets-reset-by-this-week-s-wild-price-swings
Published Date: Sat, 16 Jan 2021 13:47:40 +0000