The Ethereum market has been sending out worrying signals in the third week of March. Estimated Leverage Ratio (ELR) $ETH Binance has reached an all-time high.
What does this signal mean and what risks can it pose to Ethereum traders?
Ethereum’s estimated leverage ratio on Binance reaches an all-time high
According to CryptoQuant, Ethereum’s estimated leverage ratio (ELR) on Binance has reached a record level of 0.751.
Analyst MorenoDV explained that this means over 75% of Ethereum transactions on the platform are leveraged. This level is even higher than the 0.55 recorded in the week ending October 10 last year, when the overall market experienced a sharp decline, causing $19 billion in liquidations.
“Importantly, this increase in leverage occurred rapidly with little consolidation, as a significant portion of the leverage $ETHThe recent rise in has been driven by derivatives flows rather than sustained spot demand,” MorenoDV explained.
Ethereum’s estimated leverage ratio on Binance. Source: CryptoQuant
CryptoQuant analyst Arab Chain also said that the ELR has historically fluctuated within a narrow range. The recent surge suggests the market is entering a high-risk phase.
This is not the first time leverage has increased in the market. But the historic peak is enough to make investors cautious.
“Historically, increases in such levels often increase the likelihood of sharp price movements, as even small price movements can trigger a series of liquidations on both long and short positions,” Arab Chain said.
another explanation
Is it possible that a liquidation event like the one on October 10th will happen again? While a number of 0.751 seems alarming, there are several other important data points to consider.
ELR is calculated by dividing open interest (OI) by exchange reserves. This means that the ratio can rise if OI increases rapidly or if the amount of OI increases. $ETH Exchange holdings fell.
Ethereum open interest on Binance has increased by $1.5 billion since the beginning of the month, reaching $6.6 billion, according to data from Coinglass. However, it is still well below the more than $12 billion recorded in October last year.
Ethereum open interest on Binance. Source: Coin Glass
Additionally, according to a recent report from BeInCrypto; $ETH Exchanges’ foreign exchange reserves have plummeted to record lows.
According to BeInCrypto, institutions are accelerating the following transitions: $ETH For staking. They are withdrawing their assets from exchanges to earn yield. This reflects strong long-term confidence in Ethereum, but could also push ELR higher.
Whatever the explanation, analysts’ warnings still carry weight. $ETH It recently fell more than 6% after the Federal Reserve announced it would keep interest rates on hold. The move resulted in more than $153 million in liquidations, mostly from long positions.
The post Ethereum Leverage Ratio Breaks Its Own Record: Liquidation Risk Is Rising appeared first on BeInCrypto.
