Ethereum [ETH] traders embrace higher leverage to boost earnings
ETH is experiencing a surge in leverage trades following the volatility and demand slowdown since early February. A contrast to its performance in January, but recent observations suggest an increased risk of liquidations which may bring about a surge in volatility.
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A recent CryptoQuant analysis looked into the potential for the Ethereum futures market being overheated. The analysis was based on the observed surge in the demand for leverage among futures market participants.
The uptick in leveraged trades reflects the lower demand in the market, hence the lower enthusiasm in price action.
Source: CryptoQuant
A surge in demand for leverage is often associated with a higher risk of longs or shorts liquidations. A volatility surge usually accompanies a large liquidation due to the subsequent short squeeze or long squeeze. But is ETH currently headed for such a scenario?
ETH long and short liquidations might reveal some interesting insights about the state of demand.
On the other hand, ETH shorts liquidations dropped since the start of March while longs liquidations experienced a surge. The outcome confirms that long liquidations were piling up due to the bullish expectations.
Source: CryptoQuant
ETH traders rapidly exited their leveraged long positions as the price dropped since 2 March. A bearish bias may lead to an increase in short positions but the likely outcome, in this case, is a drop in demand for leverage.
A consequence of the uncertainty at the current range after the surge in long liquidations. The recent drop in ETH’s open interest metric confirms this, courtesy of its drop in the first few days of March.
Source: CryptoQuant
The open interest metric recently
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