Are Bitcoin traders becoming more risk-averse?

Posted: September 18, 2023

• Traders in Bitcoin’s Futures market have doubts about any imminent price rally
• This has led them to reduce risk exposure by cutting leverage-based cash-margined BTC transactions 

As Bitcoin [BTC] traders become increasingly less confident in positive price action in the short term, the coin’s estimated leverage ratio for cash-margined BTC Futures continues to plummet. This, according to a new report by pseudonymous CryptoQuant analyst Phi Deltalytics. 

BTC’s estimated leverage ratio for cash-margined Futures tracks how much leverage is being used in the coin’s cash-settled Futures market. It is calculated by dividing the total dollar value of Open Interest in cash-margined BTC Futures contracts by the coin’s total market capitalization.

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According to Phi, participants in BTC’s Futures market have grown increasingly wary of using leverage (borrowed money) to trade in the coin’s Futures markets. Especially as it continues to face significant resistance around the $30,000-price mark.

Source: CryptoQuant

At press time, the coin was trading at $26,669, according to data from CoinMarketCap. In fact, BTC has lingered within the narrow price range of $25,000 – $28,000 since April. 

A glimmer of hope?

While traders have reduced their leverage-based transactions in BTC’s cash-margined trades, the overall count of open positions in the coin’s Futures markets has climbed. 

BTC’s Open Interest started to rise again on 4 September, after it had dropped to a two-month low following the deleveraging event of 17 August. With a reading of $11.14 billion at press time, the coin’s Open Interest has since grown by 10%. This hinted at the re-entry of traders who had previously left the market due to the liquidity flush.

Source: Coinglass

When an asset’s Open Interest rallies in this manner, it indicates a hike in the total number of outstanding contracts or positions that have not yet been closed out by either a buyer or a seller. It often suggests increased trading activity and participation in the market with a hike in the number of new positions being created. 

Read Bitcoin’s [BTC] Price Prediction 2023-2024

Also, despite the coin’s narrow price movements and recent headwinds, which caused the crypto to trade below $26,000, its funding rates across cryptocurrency exchanges have remained significantly positive. This, according to data from Coinglass.

Source: Coinglass

In fact, since the year began, the only period when traders have massively shorted BTC was on 18 August, after the capital flight that occurred the previous day. The coin’s funding rates fell to a year-to-date low of -0.017%. 

As the market gradually recovered, BTC’s funding rates became positive and has since remained so. This is a sign that traders have resumed placing bets in favor of a price rally.