Bitcoin continues to defy expectations as its price surpasses the $31,000 mark, accompanied by a surge in spot buying. However, beneath the surface, indicators reveal a concerning trend of increasing leverage in the market, reminiscent of the period surrounding the BlackRock ETF announcement. Despite these warning signs, investor appetite remains strikingly bullish, highlighting the resilience and potential for further growth in the cryptocurrency market.
One metric that sheds light on the leverage in the market is the ratio of futures open interest to the overall market cap. Currently standing at over 2.1%, this ratio mirrors the levels observed during the announcement of the BlackRock ETF. Such a metric acts as a proxy for the leverage in the system, suggesting a similar level of risk exists in the market.
Another measure of leverage, the estimated leverage ratio, has been on the rise since April. This ratio, which compares the open interest in futures contracts to the balance of the corresponding exchange, indicates an upward trend in leverage and, consequently, heightened risk within the market.
Source: Glassnode
Investor sentiment, as depicted by the options ’25 delta skew,’ paints a particularly bullish picture. The skew, which reflects the preference for call or put options, leans heavily towards the call side. This signifies an unprecedented level of optimism in calls, suggesting an overwhelming bullish sentiment among investors.
Source: Glassnode
These factors collectively present an intriguing view of Bitcoin’s current market state, showcasing a solid bullish sentiment prevailing despite the increased leverage. However, it is essential to remain cautious, considering the potential risks associated with heightened leverage levels.
Additional data from Glassnode reveals a positive outlook for Bitcoin, with approximately 79% of the circulating supply, or around 15,079,000 coins, now valued higher than when they were last moved. This demonstrates significant profitability for Bitcoin investors, with a high percentage of the supply in profit indicating the potential for further upward movement in the price cycle.
Moreover, institutional investors have shown a remarkable increase in their fund holdings, as analyzed by CryptoQuant, an on-chain analytics firm. This accumulation of funds by institutional players aligns with the upward trend in Bitcoin prices, highlighting their growing interest in the asset.
Bitcoin’s resilience is also evident in its performance during the recent banking crisis. Despite experiencing a dip to $14,000 levels in November 2022 due to market turbulence caused by the fall of investment firm Three Arrows Capital and the subsequent impact on the crypto exchange FTX, Bitcoin rallied by nearly 70% this year, outperforming Nasdaq and commodities by March 2023.
To conclude, while the price of Bitcoin continues to surge above $31,000, it is crucial to monitor the growing leverage in the market. Despite the potential risks associated with increased leverage, the prevailing bullish sentiment among investors, alongside the positive indicators of profitability and institutional accumulation, suggests a bright future for Bitcoin and the wider crypto sector.