Bitcoin Estimated Leverage Ratio Spikes To New High — Fresh Volatility Ahead?

Bitcoin

Bitcoin Estimated Leverage Ratio Spikes To New High — Fresh Volatility Ahead？

After surging toward the $100,000 mark a few days into the new year, the price of Bitcoin looks set to end January in stark contrast to how it started the month. On Thursday, January 29, the flagship cryptocurrency fell to a multi-month low of around $81,500, with the general market sentiment worsening over the past few weeks.

Going into the weekend, the price of Bitcoin has somewhat cooled off, recovering above the $93,000 level on Friday, January 30. Interestingly, the latest on-chain data suggests that the market leader is only on the verge of another violent price movement.

BTC Setting Up For A Violent Liquidation Cascade

In a Quicktake post on the CryptoQuant platform, CryptoOnchain shared insights into the current on-chain condition of the Bitcoin price. According to the market quant, the Bitcoin Estimated Leverage Ratio (ELR) witnessed a notable upswing on Binance, the worlds largest crypto exchange, while price was undergoing its most recent correction.

For context, the Estimated Leverage Ratio is an on-chain metric that tracks the ratio between open interest and the reserve of an exchange (Binance, in this case). This metric measures the average amount of leverage used by the traders in a particular market or exchange.

A higher ELR signals a higher market risk, suggesting that small price movements could lead to significant liquidations. According to data from CryptoQuant, CryptoOnchain highlighted that the Bitcoin Estimated Leverage Ratio recently spiked to a critical level of 0.188 when the price fell to around $81,500, indicating that the Open Interest is exceptionally high relative to the exchanges reserves.