Data shows the Ethereum Leverage Ratio has continued to see sharp growth recently, something that could lead on to volatility for ETH’s price.

Ethereum Estimated Leverage Ratio Has Been Setting Latest Highs Recently

As explained by an analyst in a CryptoQuant Quicktake post, the Ethereum Estimated Leverage Ratio has been following an upward trajectory for some time now. The “Estimated Leverage Ratio” here refers to an indicator that calculates the ratio between the ETH Open Interest and Derivatives Exchange Reserve.

The previous of those, the Open Interest, measures the overall amount of derivatives positions related to the asset which might be currently open on all centralized exchanges, and the latter, the Derivatives Exchange Reserve, keeps track of the variety of tokens that investors have deposited into derivatives platforms.

When the worth of the Estimated Leverage Ratio rises, it means the Open Interest goes up relative to the Derivatives Exchange Reserve. Such a trend implies that, on average, the users are choosing a better amount of leverage with their positions.

Then again, the indicator taking place suggests the appetite for risk could also be taking place among the many traders as they’re decreasing the quantity of leverage attached to their positions.

Now, here’s a chart that shows the trend within the Estimated Leverage Ratio for Ethereum over the past yr and a half:

The worth of the metric appears to have been sharply going up over the previous few months | Source: CryptoQuant

As displayed within the above graph, the Ethereum Estimated Leverage Ratio has been riding an uptrend for the past few months, implying the investors have increasingly been willing to tackle higher risk.

Historically, a high amount of leverage available in the market has generally led to volatile price motion for the cryptocurrency. The rationale behind that is the proven fact that mass liquidation events turn out to be probable to occur in such an environment.

During a mass liquidation event (popularly often known as a squeeze), a sudden swing in the value triggers a considerable amount of liquidations without delay. These liquidations feed back into the value move, causing much more liquidations.

On condition that the Ethereum Estimated Leverage Ratio is sitting at extreme levels, the probabilities of traders finding liquidation are high. It’s uncertain, though, which side of the market a possible squeeze within the near future would involve.

Long investors getting wrapped up within the event would naturally result in a bearish final result for ETH, while a brief squeeze could kickstart a wave of bullish price motion. It only stays to be seen how the volatility emerging from the high leverage, if any, would find yourself affecting the asset.

ETH Price

On the time of writing, Ethereum is trading around $3,300, down around 1% over the past week.

Looks like the value of the coin has been trading sideways over the previous few days | Source: ETHUSDT on TradingView

Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com