The leverage ratio of Bitcoin futures is falling rapidly, indicating that traders are scared or unsure of the BTC price trend.
The leverage used in the Bitcoin (BTC) futures market has dropped significantly over the past few days. This shows that traders are often undecided about where BTC is going in the near term.
Estimated leverage on Binance. Source: CryptoQuant
What is leverage and why is this metric so important to Bitcoin market sentiment?
In the Bitcoin futures market, traders can borrow up to 125 times their starting capital to trade Bitcoin.
This allows traders to enter huge Bitcoin positions that are far greater than the capital they have.
During the uptrend, traders tend to overuse their positions as they anticipate larger upward price movements. However, when the market becomes volatile and extremely volatile, traders become scared.
If the leverage used in the Bitcoin futures market drops, it simply means that traders borrow less capital to trade BTC. This is probably considered a sign of fear that causes traders to enter safer positions with lower risk of liquidation.
There are several reasons investors are scared at the current stage of the market. First, Bitcoin rejected the $ 40,000 resistance level after $ 42,000. Second, the US dollar index (DXY) is recovering. Third, high selling pressure from Asia.
Filbfilb, a Bitcoin trader, referred to the sale on January 16 as the “high IQ game”. He noted that the rise of the US dollar has given him momentum and traders continue to take every drop.
As a result, the funding rate of the futures market has steadily increased, despite the fall in the Bitcoin price. Filbfilb wrote:
Today’s sales was high IQ game. Embrace the trash, don’t ignore the trash, you have to embrace it. DXY gained momentum, bulls fully bought. They continued to sell, DXY gained momentum, Tether FUD provided fear, you cannot escape with fear of USDT. Embrace the trash.
The trader also noted that there was a high level of selling pressure from Asia. Therefore, he explained that the purchase offers had to be filled and this led to a correction.
After a major shake, an uptrend is typically expected to come. Considering that it fell below $ 36,000, many traders were shaken from their positions in the last correction.
The funding rate of the Bitcoin futures market was also briefly zeroed, implying that the number of buy contracts decreased significantly after the decline.
With the derivatives market cooling, the probability of an upward reversal increased. In the short term, Bitcoin’s core resistance area still remains at $ 40,000, followed by $ 42,000.
David Puell, a Bitcoin trader, also stated that the premium of Grayscale has increased, indicating an upward trend.