coindesk.com
Bitcoin is trading with a heavy tone amid signs of excess leverage and greed in the market.
The largest cryptocurrency by market value was changing hands near $58,900 at press time, representing a 2.3% drop on the day. It is down 12% from last week’s record high of $66,975, CoinDesk 20 data shows.
A pullback was overdue, and more downside volatility could be in the offing, according to analysts. “Estimated leverage ratio is about to hit a year-high. It seems obvious that the market is over-leveraged now,” Ki Young Ju, CEO of data analytics firm CryptoQuant said. “We’ll see some volatility with huge liquidations shortly.”
The estimated leverage ratio is calculated by dividing futures open interest across all exchanges by bitcoin reserves on exchanges. Open interest refers to the number of contracts traded but not squared off with an offsetting position.
The ratio essentially shows the degree of leverage of an average investor. While a rising ratio indicates increased risk appetite, a very high number reflects excess leverage buildup and has marked price tops early this year.
The sell-off may be much more severe if traditional markets wilt due to rising odds of faster scaling back of stimulus by the Federal Reserve.