Bitcoin (BTC) has seen a slight recovery after the inflation-driven drop yesterday to $117,180, and has risen back to $119,000 at the time of writing. The declining leverage ratio suggests that the bullish momentum of this leading cryptocurrency may continue, positioning it for a potential new all-time high (ATH) in the near future.
Bitcoin Leverage Ratio Declines, Bulls Cheer
According to a CryptoQuant Quicktake post by contributor Arab Chain, the leverage ratio of Bitcoin across all cryptocurrency exchanges has sharply declined from a peak of 0.27 at the end of July and early August.
Notably, this ratio dropped to 0.25 in early August before a slight recovery. In contrast, the period from May to the end of July saw both prices and leverage ratios increase, signaling a wave of traders opening larger positions.
In contrast, this time leverage has decreased while prices have not correspondingly declined—a sign that risks have eased since the recent uptrend. Arab Chain notes that this could be a result of high-risk positions being liquidated or traders exiting the market amid volatility.
With BTC holding at around $119,000, the lower leverage ratio is a bullish sign, indicating that the recent price increase is primarily due to actual liquidity rather than excessive speculation.
A continued decline in leverage could further reduce the likelihood of a strong correction. Conversely, a sudden surge in leverage alongside rising prices would increase the risk of correction. The analyst added:
If leverage remains moderate or low while prices stabilize, this could lay a solid foundation for a new uptrend. An estimated leverage ratio (ELR) holding between 0.24–0.25, coupled with prices gradually surpassing the $120,000 threshold, may indicate bullish momentum supported by the spot market and could extend to July highs, with moderate capital and gradually increasing open trading volume.
However, a rapid increase in the leverage ratio above 0.27 before or during testing in the $120,000–$124,000 range could signal a high liquidation risk and the potential for a strong downward 'shakeout'.
On-Chain Data Indicates Hidden Selling Pressure
While lower leverage is encouraging Bitcoin speculators, on-chain data—especially rising exchange reserves and whale transfers—suggest that selling pressure may occur in the future.
For example, Binance's BTC reserves have recently surged to 579,000, raising concerns about profit-taking after Bitcoin's recent price surge to an all-time high (ATH). Similarly, an increasing number of BTC miners are transferring their holdings to Binance, potentially preparing to sell.
Adding to the caution, some analysts warn of the possibility that Bitcoin prices could drop to $110,000 to fill the remaining reasonable value gap. At the time of writing, BTC is trading at $118,672, down 0.1% in the past 24 hours.