Bitcoin’s Estimated Leverage Ratio (ESL) rebounded 9% this month, rising from a YTD low of 0.2218 on Mar. 4 to 0.2417 on Mar. 18. This recovery pushed ESL back to levels last seen in late January, though it remains well below the YTD peak of 0.2709 seen on Feb. 20.
ESL measures how much leverage derivatives traders use by calculating the ratio between open interest and exchange reserves. Monitoring ESL shows when investors are taking or reducing high-leverage risk when trading derivatives,
Bitcoin’s price was well above $98,300 on Feb. 20, so the ESL reflected a very bullish and leveraged market. As Bitcoin’s price dropped below $80,000, ESL also hit its low, showing that traders were closing leveraged positions in response to the downward volatility.
The subsequent ESL increase through mid-March follows the stabilization of Bitcoin’s price and its move toward previous resistance levels. It shows the market’s continued willingness to engage leverage during price recoveries. If Bitcoin’s price holds above recent support, ESL could trend higher, showing a rising risk exposure.
However, a rising ESL brings higher liquidation risks if the market turns unexpectedly. If Bitcoin’s price were to drop sharply again, a high ESL could exacerbate market movements by rapidly triggering forced liquidations.
Monitoring the 7-day SMA of ESL alongside price swings will reveal traders’ risk tolerance. This month’s rebound shows that, despite near-term volatility, derivatives traders are still inclined to utilize leverage to capitalize on the volatility in Bitcoin’s price.
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