Today, the All Exchanges Estimated Leverage Ratio sets a new ATH for this 2021. This indicator is a warning for high leverage trading, and especially for retail traders.
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The possibility of unexpected volatility will “wipe out” small transactions
This observation and statement comes from kryptonitetrading with data taken from CryptoQuant.
- If you look at the historical correlation between Bitcoin price movement and leverage ratio across all exchanges, you will notice that at times when leverage is high, large amplitude fluctuations will occur. In 2021, in most of the times when this rate is high, Bitcoin usually plummets. Only once in July 2021 when the BTC price reached nearly 30,000 right at the time when the leverage ratio increased, the price of BTC jumped sharply.
- However, according to kryptonitetrading, whether the above correlation is positive or negative, in every time when this ratio is high, small traders with large leverage are “wiped out”. Therefore, this is also the time when traders need to be more careful with the leverage ratio of the trade.
“Bitcoin seems to be in a typical accumulation pattern”
That is also the opinion of kryptonitetrading, he thinks that Bitcoin is in a typical accumulation pattern, as happened in mid-2021.
- During a period of accumulation like this, at times when inflows (purple columns) and leverage are high, “fake breakouts” are more likely to occur.
- This analysis also predicts such a “fake breakout” in the current situation (marked by the blue circle).
Accordingly, this analysis also implies that the same scenario in July 2021 will repeat. That means Bitcoin will probably sideway around $42,000 ~ $51,000 and wipe out large leveraged trades before entering a new bullish wave.
