The cryptocurrency market appears by some measures to be ready to exit the narrowest trading range in nearly two years.
Based on a gauge, the leverage ratios for the two largest tokens by market cap – bitcoin and ether – are also the highest on record this year with both prices down more than 50%. According to blockchain data-site Cryptoquant, it is calculated by dividing by the amount of open interest for perpetual swap contracts and the amount of coins reserved on exchanges.
“People think the market has stabilized and are willing to make big speculative positions,” said Darius Sitt, co-founder of Singapore-based crypto investment fund QCP Capital. Possibility of loss due to a rare event — “the price is running out.”
Crypto traders favor perpetual contracts – which, unlike traditional calendar futures, do not expire – in part because it allows them to hold highly leveraged positions.
Bitcoin, which accounts for about 40% of the estimated market cap of all cryptocurrencies, traded within a range of around 5.4% last week, the lowest since October 2020, data compiled by Bloomberg shows. The lull from two years ago was followed by a month-long rally in prices that eventually propelled bitcoin to a record high in April 2021.
cryptocurrency Prices have been stagnant since June, when the Terra stablecoin ecosystem collapsed, following the demise of hedge fund Three Arrows Capital and the bankruptcy of Voyager Digital and Celsius Network.
Despite the Federal Reserve’s recent scathing comments about inflation and the economic slowdown, more traders are increasingly placing leveraged bets on riskier assets, including crypto.
Overall, the biggest catalyst for increased leverage is likely to be the much-anticipated upgrade to the Ethereum blockchain later this month. The most commercially important network is set to use the coins at stake in a more energy-efficient than its current system of using miners. Data collected by blockchain research firm Caico shows that open interest in perpetual swap contracts in ether reached an all-time high in late August.
“As we get closer to the merger, ETH leverage will continue to build up,” said Shiliang Tang, chief investment officer at crypto asset investment firm Laserprime.
Meanwhile, funding rates for both Bitcoin and Ether Perpetual have turned negative over the past few weeks, according to data site Skew. Exchanges use the so-called funding rate — or cost of trading — to link contracts to their underlying spot price. When the rate is positive, those who hold long positions are paying interest to investors who are short, and vice versa.
Caiko speculates that traders are biased towards the downside as they are betting on either a failed or delayed transition to Ethereum’s proof of stake or hedging Ether long positions prior to the merge.
“An increase in leverage with more bears could result in a smaller squeeze, as the more-leveraged bears get liquidated when prices move up,” said Andrew Two, head of development at crypto algorithm-trading firm Efficient Frontier. Neutral position in trading.
This story has been published without modification in text from a wire agency feed.
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