On June 5, 2024, the crypto derivatives exchange Bitmex announced it is offering 200x leverage for ethereum perpetuals ahead of the U.S. ether exchange-traded funds (ETFs) trading debut. Bitmex Ramps Up Ethereum Trading With 200x Leverage Offering According to a social media post on X published Wednesday, Bitmex is introducing 200x leverage perpetuals for ethereum […]
Bitcoin News
Ethereum Investors Take On Sky-High Leverage: Brace For Volatile Storm?
Data shows the investors in the Ethereum derivatives market have been taking on very high leverage recently, something that could lead to volatility for the asset.
Ethereum Estimated Leverage Ratio Has Been At Extreme Levels Recently
As pointed out by an analyst in a CryptoQuant Quicktake post, the ETH Estimated Leverage Ratio has been on the up recently. The “Estimated Leverage Ratio” (ELR) refers to an indicator that keeps track of the ratio between the Ethereum Open Interest and Exchange Reserve.
The former of these, the Open Interest, here is a measure of the total amount of derivatives positions related to ETH that are currently open on all centralized exchanges.
The second metric, the Exchange Reserve, naturally tells us about the total number of tokens of the cryptocurrency that are sitting in wallets attached to all exchanges.
When the ELR’s value rises, it means that the Open Interest is increasing at a faster rate than the Exchange Reserve. Such a trend implies that investors are opting for a higher amount of leverage on average. On the other hand, a decline in the indicator suggests the derivatives market users are moving towards a lower amount of risk as they are deleveraging their positions.
Now, here is a chart that shows the trend in the Ethereum ELR over the last few years:
As displayed in the above graph, the Ethereum ELR has observed some steep growth recently. This sudden sharp uptrend in the asset came about as news around the spot exchange-traded funds (ETFs) gained traction in the buildup to the approval.
The cryptocurrency’s price also registered a sharp rally during the same time. Thus, the conditions were perfect for attracting fresh speculation related to the coin, so it’s not surprising that the indicator’s value saw a spike.
The rise has also continued beyond the approval of the ETFs, but the price has fallen to a sideways movement. It would appear that the investors are willing to take even higher risk despite this consolidation, trying to bet big on where Ethereum could escape from here.
Historically, a high value of the leverage ratio has meant a higher volatility for the asset’s price. This is because mass liquidation events can become more probable to take place when the investors are sitting in overleveraged positions.
With ETH trading sideways recently and all these positions building up, it might take only one break in either direction before a lot of these positions come crashing down. A large number of such liquidations happening at once would only fuel further into the price move that caused them, thus amplifying it.
It now remains to be seen how the Ethereum price develops in the coming days and if a volatile move is waiting for it given the trend in the ELR.
ETH Price
May has been a good time for Ethereum investors as the asset is looking to close the month with positive returns of more than 18%.
Latam Insights: Venezuela to Leverage USDT for Sidestepping Sanctions, Chivo Wallet Disregards Hacking Allegations
Welcome to Latam Insights, a compendium of Latin America’s most relevant crypto and economic news during the last week. In this issue: Venezuelan oil company PDVSA could use USDT to sidestep U.S. sanctions, Chivo Wallet denies hacking allegations, and Nubank expands its crypto functionality in Brazil. Venezuela Might Use USDT for Sidestepping Sanctions Venezuela is […]
Bitcoin News
Is Bitcoin’s Rally Over? Leverage Drops As Halving Highs Fade: Report
Recent trends in the crypto market have indicated a notable shift in trader behavior, particularly among those investing in Bitcoin.
Using data from CryptoQuant, Bloomberg has revealed that the Bitcoin funding rate—the cost for traders to open long positions in Bitcoin’s perpetual futures—has turned negative for the first time since October 2023.
This change suggests a “cooling interest” in leveraging bullish bets on Bitcoin, coinciding with the fading impact of major market drivers.
Bitcoin Market Dynamics Post-Halving
The decline in Bitcoin’s funding rate correlates with a reduction in net inflows to US spot Bitcoin Exchange-Traded Funds (ETFs), which previously pushed the cryptocurrency to record highs.
Despite the anticipation surrounding the Bitcoin Halving—an event reducing the reward for mining new blocks and theoretically lessening the supply of new coins—the price impact has been surprisingly muted.
According to Bloomberg, this subdued response has compounded the effects of broader economic factors, such as geopolitical tensions and changes in monetary policy expectations, leading to increased risk aversion among investors.
Following the latest Bitcoin halving, the market has not seen the bullish surge many expected. Instead, Bitcoin has only seen a correction of over 10%, from its all-time high (ATH) in March with prices stabilizing in the ,000 region, at the time of writing.
As CryptoQuant’s Head of Research Julio Moreno pointed out, the recent downturn in Bitcoin’s funding rates to below zero underscores a “decreased eagerness” among traders to take long positions.
According to Bloomberg, this trend is supported by a significant drop in daily inflows to US spot Bitcoin ETFs and a reduction in open interest in Bitcoin futures at the Chicago Mercantile Exchange (CME), which indicates a broader cooling of enthusiasm for crypto investments.
[1/4] Bitcoin ETF Flow – 25 April 2024 – UPDATE pic.twitter.com/ojRayOFlnu
— BitMEX Research (@BitMEXResearch) April 25, 2024
In a Bloomberg report, K33 Research analyst Vetle Lunde noted that the “current streak of neutral-to-below-neutral funding rates is unusual,” suggesting that the market might be entering a price-consolidation phase.
Notably, this period of reduced leverage activity could potentially lead to further price stabilization, but it also raises questions about the near-term prospects for Bitcoin’s recovery.
Adjustments In Mining Difficulty And Market Implications
Interestingly, alongside these market adjustments, Bitcoin’s mining difficulty has increased for the first time immediately following the fourth halving.
The difficulty adjustment, which occurs every 2016 block, increased by 2%, reaching a new high of 88.1 trillion, according to Bitbo data.
This adjustment contradicts past trends where the difficulty typically decreased post-halving due to reduced profitability pushing less efficient miners out of the market.
This anomaly in mining difficulty suggests that despite lower rewards post-Halving, miners remain active, possibly buoyed by more efficient mining technologies or strategic shifts within mining operations.
This resilience in mining activity could help sustain the network’s security and processing power. Still, it reflects the complexities of predicting Bitcoin’s market dynamics solely based on historical halving outcomes.
Featured image from Unsplash, Chart from TradingView
Latam Insights: Venezuela and Argentina Leverage ‘Unique’ Crypto Use Cases, Brazilian Congress Advises Indicting CZ
Welcome to Latam Insights, a compendium of Latin America’s most relevant crypto and economic news during the last week. In this issue: Venezuela and Argentina use crypto uniquely, according to Chainalysis; the Brazilian Congress recommends indicting Binance CEO Changpeng Zhao, and the Argentine peso keeps falling to record lows.
Chainalysis: Argentina and Venezuela Present Unique Crypto Use Cases
According to a recent article referencing Chainalysis 2023 Geography of Cryptocurrency Report, Venezuela and Argentina use crypto uniquely to tackle their particular issues. Argentina is leveraging crypto to fight the breakdown of its currency, which has reached record lows recently. For Argentines, cryptocurrency (especially stablecoins) presents an opportunity to save in dollars, preserving their purchasing power.
Alfonso Martel Seward, Head of Compliance & AML at Lemon Cash, stated:
We have really high inflation, and there are lots of restrictions against buying foreign currencies. That makes crypto a valuable option for saving. As crypto adoption has grown, lots of people here will now get their paycheck and immediately put it into USDT or USDC.
Also, in the Venezuelan case, Chainalysis explained that crypto is used to fight authoritarianism, enabling remittances to reach Venezuelans and providing refuge against hyperinflation. Leopoldo Lopez, a former Venezuelan opposition leader now in exile, detailed:
Venezuela has had one of the worst-ever hyperinflation rates at over 1 million percent. Cryptocurrency, particularly stablecoins, has helped many Venezuelans overcome this.
Furthermore, he remembered when a crypto-enabled system allowed more than 65,000 doctors and nurses to receive direct aid in 2020 amid the COVID crisis.
Brazilian Congress Advises Indicting Changpeng Zhao
Binance might be heading to another legal battle, as a committee of the Brazilian Congress has recommended the indictment of four Binance officials, including Binance CEO Chagpeng “CZ” Zhao. The committee, comprised of 28 members of the lower chamber of Congress, also called the country’s securities and exchange regulator (CVM) to investigate the exchange for its alleged “repeated violation of the securities market rules.”
Binance stated that it will go to “great lengths” to collaborate with the committee responsible for the investigation, stressing that it “strongly rejects any attempts to make Binance a target or even expose its users and employees with allegations of bad practices without any proof, amid competitive disputes given the company’s leadership position in Brazil and in the world.”
Argentine Peso Likened to Excrement Before Hitting Record Lows
The Argentine peso kept losing value this week, hitting record lows after presidential candidate Javier Milei compared it to excrement. In a radio interview, Milei invited people to save in foreign currency, stating:
The peso is the currency issued by the Argentine politician and therefore cannot even be worth excrement, because that garbage is not even useful for fertilizer.
These statements prompted the filing of two legal complaints against Milei, who was accused of causing the fall of the national currency to 1050 pesos per dollar in its “blue” informal exchange rate.
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Ethereum Leverage Ratio Is Rising, What Does It Mean?
Data shows the Ethereum leverage ratio has been going up recently, something that may lead to higher volatility for the asset’s price.
Ethereum Estimated Leverage Ratio Has Risen To 23% Now
As explained by an analyst in a CryptoQuant Quicktake post, the Ethereum leverage ratio is pointing at increased risk in the market. The “estimated leverage ratio” (ELR) refers to the ratio between the Ethereum open interest and derivative exchange reserve.
The former of these, the “open interest,” keeps track of the total amount of positions that are currently open in the ETH futures market, while the latter metric, the derivative exchange reserve, simply measures the number of tokens sitting in the wallets of all centralized derivative exchanges.
The ELR basically tells us about how much leverage the average user on the futures market is currently opting for. When this indicator has a high value, it means that the open interest has a significant value compared to the exchange reserve, and so, the average contract is going for a high amount of leverage.
On the other hand, low values imply that the futures market users aren’t willing to take risks at the moment as they haven’t taken any significant amount of leverage.
Now, here is a chart that shows the trend in the Ethereum ELR over the last few years:
Historically, whenever the ELR has gone up, the price of the cryptocurrency has become more likely to show volatility. This is due to the fact that a higher amount of leverage means that the average contract becomes more likely to get liquidated.
A large amount of liquidations happening at once can lead to chaos in the market, and since this is more likely to happen when the ELR is high, the price can naturally have a greater chance of turning volatile.
As displayed in the above graph, the Ethereum ELR had risen to some high values in August. As it usually plays out, this overleveraged market condition resulted in sharp price action for the asset, which, in this case, occurred in the form of a steep crash from the ,800 level to the ,600 level.
The ELR quickly cooled down to relatively low values with the crash, as the positions with the most leverage were weeded out. For a while, the metric moved sideways at these lows, but recently, the indicator has once again started to rise.
At present, the metric has a value of 23%, which isn’t as high as the pre-August crash value, but is still notable nonetheless. Huobi, Derbit, and OKX appear to have a disproportionate amount of leverage as compared to the wider sector, as the ELR for the platforms is currently 88%, 73%, and 43%, respectively.
“When ELR increases, volatility tends to follow the same path,” notes the quant. “In this sense, Ethereum may be heading towards a period of increased turbulence.”
ETH Price
Ethereum had declined towards ,500 at the start of the week but has since made recovery back above the ,600 mark.
Economist Jim Rickards States BRICS Currency Will Leverage Gold to ‘Destroy the Dollar’
Jim Rickards, economist and best-selling author, has explained the possible repercussions of issuing a BRICS bloc currency for the dollar. For Rickards, the “bric” (the name he gives to the BRICS currency) will be anchored (but not redeemable or backed) to a weight of gold and will be used for debasing the dollar by propping up commodity prices.
Jim Rickards Speculates BRICS Currency Will Be Anchored to a Weight of Gold
Jim Rickards, economist and best-selling author, has commented on his vision of a hypothetical BRICS (Brazil, Russia, India, China, and South Africa) bloc currency and how it could be leveraged to devalue the U.S. dollar.
To Rickards, the “bric” — the name he gives the BRICS currency — will be anchored to a determined weight in gold, but not backed by it. This is because the BRICS nations will free-ride on top of the gold markets without intervening to manage the bric-dollar peg.
This will also allow its price to go up as inflation and devaluation hit the U.S. dollar, ostensibly leading to the greenback’s destruction. On this, Rickards stated:
It’s a way to destroy the dollar. You don’t need dollars and you don’t need gold. You just need to be smart enough to anchor your currency to gold, and when dollar inflation starts to go up, your currency is going to be worth more because of how you pegged it, not to dollars, but how you pegged it to gold.
However, Rickards acknowledges that this might take years to happen.
Disrupting Supply Chains
Rickards stated that another way of turbocharging the debasement of the U.S. dollar would be to interfere with the supply chains of commodities in the world. He mentioned the end of the Black Sea grain deal between Russia and Ukraine as an example, stating that grain prices went up by 10% just after the announcement of the suspension.
On this, Rickards explained:
So, if I were a BRICS member, and I were Russia in particular, and I had this currency tied to gold, and I wanted my currency to be more valuable and your currency (U.S. dollar) less valuable, one of the ways to do that is mess with the supply chain and drive up the price of oil, gasoline, grain.
In January, Russian Foreign Minister Sergey Lavrov stated that the bloc would discuss an official currency this August. However, South Africa’s diplomat in charge of BRICS relations, Anil Sooklal, recently declared this topic was not on the agenda for the upcoming summit.
What do you think about Rickards’ thoughts on the hypothetical BRICS currency? Tell us in the comments section below.
Bitcoin Leverage Ratio Plunges, Here’s What This Means
On-chain data shows the Bitcoin estimated leverage ratio has taken a plunge recently; here’s what this could mean for the market.
Bitcoin’s Estimated Leverage Ratio Has Sharply Declined Recently
As an analyst in a CryptoQuant post pointed out, the leverage has dropped in the market despite the rally. The relevant indicator here is the “estimated leverage ratio,” which measures the ratio between the Bitcoin open interest and the total amount of BTC stored in all derivative exchanges’ wallets.
The “open interest” refers to the total BTC margined futures contracts currently open on all derivative exchanges. This metric accounts for both short and long contracts.
The estimated leverage ratio tells us the average amount of leverage used by futures market users right now. When the value of this metric is high, it means the average contract holder is taking on high leverage currently.
Such a trend suggests that market participants are getting bold and willing to take on a high risk. Generally, high leverage can cause the market to become unstable. Thus, the price experiences high volatility when these conditions form.
On the other hand, low ratio values imply users need to use more leverage currently. Naturally, the price is usually calmer when this trend is observed.
Now, here is a chart that shows the trend in the Bitcoin estimated leverage ratio over the last few years:
As displayed in the above graph, the Bitcoin estimated leverage ratio had a pretty high value when the rally started in January of this year but has since been only going down.
There have been two significant plunges in the metric so far; the first occurred just as the rally began. This sharp decline was because the sudden sharp rally liquidated the high amount of short contracts that had piled up during the bear market lows, thus wiping out a lot of leverage.
This event was an example of a “liquidation squeeze.” During a squeeze, a sudden price move triggers mass liquidations that only end up feeding said price to move further, and thus, cause even more liquidations in the process.
When leverage piles up in the market, squeezes become more probable. This is the reason why the market can get more volatile when the leverage is at elevated levels.
The chart shows that the other plunge has come just during the last few days, where BTC has witnessed a high degree of volatility, with the price fluctuating wildly both up and down.
This trend of the leverage ratio only going down with the rally is somewhat unusual. Past rallies have generally accompanied the indicator following an overall upwards trend because of investors FOMOing in and opening up high-leverage positions.
As for what this strange trend in the metric may say about the current Bitcoin market, the quant thinks, “latecomers who get greedy and use crazy leverages are not here yet.”
BTC Price
At the time of writing, Bitcoin is trading around ,100, up 20% in the last week.
Rollkit Developers Leverage Bitcoin for Sovereign Rollups, Sparking Criticism from Ethereum Proponents
The Rollkit development team has announced that Bitcoin has been integrated as a means for sovereign rollups to store and retrieve data. The developers have stated that it is now possible to run the Ethereum Virtual Machine (EVM) on Bitcoin as a sovereign rollup. However, some Ethereum proponents have expressed dissatisfaction with the technology being referred to as a rollup, and have suggested that the team should avoid using the term.
Rollkit’s Modular Framework for Rollups and Its Potential Impact on the Blockchain Industry
On March 5, 2023, developers announced a new development that claims it is now possible to produce sovereign rollups to store and retrieve data using the Bitcoin blockchain. The team behind the project is Rollkit developers, who detailed that the technology allows for more possibilities for rollups and could help create a better block space fee market on Bitcoin. To make this possible, the Rollkit team used Taproot transactions to read and write data on Bitcoin and created the “bitcoin-da” package to provide the necessary interface. They also implemented the “SubmitBlock” and “RetrieveBlocks” functions for Rollkit to interact with Bitcoin.
“Rollkit is a modular framework for rollups that provides interfaces for plugging in different components, like data availability layers,” explained the Rollkit development team. “The newest addition is an early research implementation of a module that allows a Rollkit rollup to use Bitcoin for data availability.” The software programmers also noted that the Ordinal inscription trend on Bitcoin showed the team the possibilities, and they followed a similar design process. “At its core, all that was needed was two functions: one to submit rollup blocks and another to retrieve them,” the Rollkit developers said.
The Controversy Surrounding Rollkit’s Integration of Bitcoin for Sovereign Rollups
Following the announcement from Rollkit developers, a number of Ethereum proponents criticized the team for describing the process as a rollup. ETH supporter Ryan Berckmans said: “A ‘sovereign rollup on Bitcoin’ is actually an alt L1 that stores its block data on Bitcoin. It’s not a real rollup or a real L2. [In my opinion], the best way for us to fight back against these lies is to build an Ethereum zk L2 that puts its data on Bitcoin.”
Another person insisted, “Just because you have data availability doesn’t make it a rollup.” The founder of Interlay, Alexei Zamyatin, also criticized Rollkit’s announcement. “Pls ser, read this paper,” Zamyatin wrote. “You inherit *nothing* of Bitcoin’s security. Data availability – OK, but honestly, that’s been used since 2012. The entire post describes ‘I write some data to Bitcoin’ with fancy buzzwords,” Zamyatin added.
The Rollkit developers have released a demo video on Youtube of the technology in action. The team has also written a comprehensive blog post detailing how it works. “As we move towards a future where sovereign communities will form around different applications, asking them to incur the high cost and overhead of deploying a layer 1 blockchain to be sovereign is not sustainable,” the Rollkit blog post concludes. “Sovereign rollups fix this by making it possible to deploy a sovereign chain that inherits the data availability and consensus of another layer 1 chain such as Bitcoin.”
What do you think about the use of Bitcoin as a means for sovereign rollups? Do you believe it has the potential to create a better block space fee market on Bitcoin or do you agree with critics that it’s not a real rollup? Share your thoughts in the comments section below.
Nigerian Crypto Leverage Searches Second-Highest Globally — Africa Dominates Searches for Leveraged Trading Products
According to an analysis of Google searches by Leverage Trading, Nigeria is the “second-highest country in the world for searches related to crypto leverage.” Along with South Africa and Ghana, the West African nation also dominates searches for the term “trade crypto.” Regulators and consumer protection agencies must “provide greater safeguards against predatory practices,” according to a spokesperson for Leverage Trading.
Leveraged Trading and the Risks
Nigeria had the second-highest score (94) globally for searches related to crypto leverage in the past five years, the latest analysis of Google searches conducted by Leverage Trading has shown. According to the analysis, Singapore (100) is the only country that outscored the West African nation when it came to searches “with an emphasis on transactional searches such as ‘how to leverage trade crypto.’”
On the other hand, the analysis shows that Nigeria, along with South Africa and Ghana, dominate Google searches for the term “trade crypto.” When compared with similar searches by U.S. residents, Leverage Trading found that Nigerian searches were four times higher.
According to Investopedia, leveraged trading is the “use of borrowed funds to increase one’s trading position beyond what would be available from their cash balance alone.” While this form of trading can potentially amplify a trader’s profits, it can similarly amplify losses, hence it is not recommended for the inexperienced.
Regulators Told to ‘Provide Greater Safeguards’
However, despite this, African traders are seemingly unperturbed by risks that are associated with leveraged trading. Commenting on the findings which show that Africa has a disproportionately large share of the total global searches for leveraged investment products, a spokesperson for Leverage Trading said:
As technology continues to advance, it is becoming increasingly easier for individuals in emerging markets to access high-risk financial products like leverage trading. While these products can offer the promise of wealth creation, the reality is that they can also lead to devastating losses that perpetuate the cycle of poverty. The risks associated with high leverage and potential losses cannot be overstated, and it is crucial that individuals fully understand these risks before engaging in leverage trading.
The unnamed spokesperson added as financial firms increasingly target individuals in poorer countries, regulators and consumer protection agencies must “provide greater safeguards against predatory practices.”
Meanwhile, from the analysis of searches for different forms of leveraged trading, Leverage Trading found that while Africa is dominant in many leverage trading-related searches, the continent lags behind when it comes to searches for the term “stock leverage.” According to the analysis, this category is dominated by Singapore, Hong Kong, and the United Arab Emirates.
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What are your thoughts on this story? Let us know what you think in the comments section below.