The data show that the Ethereum lever ratio has continued to see strong growth recently, which could lead to the volatility of the price of the ETH.
The Ethereum estimated effect ratio has recently established new heights
As explained by an analyst in a Quicktake Cryptoque post, the Estimated Ethereum lever report has followed an upward trajectory for some time now. The “estimated lever ratio” here refers to an indicator which calculates the ratio between the open interest and the exchange reserve derived from the ETH.
The first of them, the interest opened, measures the total amount of derivatives linked to the assets currently open to all centralized exchanges, and the second, the derivative exchange reserve, maintains the number of tokens that investors have deposited in derived platforms.
When the value of the estimated lever ratio increases, this means that open interest increases in relation to the derivative exchange reserve. Such a trend implies that, on average, users opt for a higher amount of lever with their positions.
On the other hand, the lowering indicator suggests that the appetite for the risk can drop among traders because they decrease the amount of the lever effect attached to their positions.
Now here is a graphic that shows the trend of the estimated lever ratio for Ethereum in the past year and a half:
The value of the metric appears to have been sharply going up over the last few months | Source: CryptoQuant
As displayed in the above graph, the Estimated Ethereum lever ratio has been increasing for a few months, which implies that investors were increasingly willing to take a higher risk.
Historically, a high quantity of leverage on the market has generally led to a volatile action for cryptocurrency. The reason behind this is the fact that mass liquidation events become likely to occur in such an environment.
During a mass liquidation event (popularly known as compression), a sudden swing of the price triggers a large amount of liquidation at a time. These liquidations strengthen the price movement, causing even more liquidations.
Since the lever ratio estimated at Ethereum is seated at extreme levels, the chances that traders find a liquidation are high. It is uncertain, however, what side of the market a potential pressure in the near future would imply.
Long investors wrapped in the event would naturally lead to a lower result for the ETH, while a short pressure could launch a wave of upward price action. It remains to be seen how volatility emerging from the high lever effect, if applicable, would eventually affect the asset.
Ethn price
At the time of writing this document, Ethereum is negotiated about $ 3,300, down approximately 1% in last week.
Looks like the price of the coin has been trading sideways over the last few days | Source: ETHUSDT on TradingView
Dall-E, Cryptotic.com star image, tradingView.com graphic
