The market experienced a significant deleveraging event today, reaching levels we hadn't seen since the "China Ban" that marked the end of Bitcoin mining in China.
The Estimated Leverage Ratio (ELR) dropped to a critical level of -0.25 in just three days, highlighting the profound impact of geopolitical events, particularly the escalating tensions between the US and Iran, on both investor behavior and overall market dynamics.
For comparison, the ELR had dropped to -0.35 during the "China Ban" event in June 2021, but that level was reached over the span of a full month.
This sharp decline indicates that leveraged positions, and therefore Open Interest, are falling rapidly.
Liquidations triggered by recent developments have played a key role in this drop, but it also suggests that traders are voluntarily closing their positions to reduce risk exposure.
While such a drastic fall in the ELR reflects a bearish sentiment and heightened short-term anxiety, it's precisely in these moments of panic that opportunities can arise.
In the meantime, it means the market is facing elevated volatility, and opening leveraged positions now carries greater risk than usual.
Written by Darkfost
