Traders Reduce Leverage Ahead of Historic Bitcoin ETF Decision
Date: 2023-12-20 Author: Dima Zakharov Categories: BLOCKCHAIN
Traders Exercise Caution
In anticipation of the approval of the first-ever spot Bitcoin ETF in the United States, cryptocurrency traders are adopting a conservative approach by minimizing their leverage. According to data from analytical firm Glassnode, the Bitcoin leverage ratio and open interest with cash and cryptocurrency margin are at exceptionally low levels, despite the nearly 200% increase in Bitcoin's price since the beginning of the year.
An Unusual Move
CryptoSlate research analyst James Van Straten considers this behavior highly unusual, especially since the U.S. Securities and Exchange Commission (SEC) may approve multiple spot Bitcoin ETFs in just three weeks. Bitcoin ETFs are investment instruments that allow investors to buy and sell shares tracking Bitcoin's price without the need to hold the cryptocurrency itself. This is expected to attract more institutional and retail investors to the Bitcoin market, increasing liquidity and trust.
The Importance of ELR
Van Straten notes that the Estimated Leverage Ratio (ELR) is a crucial indicator reflecting the market's leverage level. Currently, ELR is approaching historic lows, signaling a significant reduction in market leverage and a conservative approach by futures market traders.
Low Open Interest
Furthermore, open interest, which indicates the total volume of open contracts on the exchange, remains low, potentially benefiting Bitcoin by reducing the risk of liquidation and volatility.
Diverse Exchange Landscape
However, Van Straten warns that the exchange landscape is not uniform. Some exchanges, such as Deribit, still demonstrate substantial leverage, while others, like Binance, continue to decrease, approaching minimum values.
Historical Precedence
Van Straten cautions that historically low ELR could also foreshadow a Bitcoin price decrease, as seen in May 2021 amid China's mining ban and in November 2022 following the FTX crash. There appears to be a correlation between ELR lows and Bitcoin's market value corrections.
Mixed Sentiments
Meanwhile, popular cryptocurrency social media commentator BitQuant expresses surprise at traders' lack of enthusiasm for Bitcoin ETFs, which he believes will be approved in just 22 days.
Awaiting the ETF Launch
The launch of spot Bitcoin ETFs is a highly anticipated event for many crypto enthusiasts who believe it will catalyze a new bullish Bitcoin market. However, it seems traders prefer to keep their powder dry and await the market's reaction to the SEC's decision.
