Key Insights:
- Investors are engaging in high-leverage risks within ether futures.
- The so-called ETH leverage ratio significantly exceeds that of BTC.
While Bitcoin captures much attention from institutional investors, Ethereum's ether (ETH) is increasingly recognized as the preferred token for traders aiming to boost returns using leverage.
Ether's leverage ratio reached a record high of 0.57 on Wednesday, a marked increase from 0.37 at the beginning of Q4 2024, according to data from analytics firm CryptoQuant.
This ratio is calculated by dividing the total open interest in futures contracts by the total number of ETH in wallets linked to exchanges involved in futures trading.
A rising ratio indicates that traders are leveraging their positions more, reflecting a spike in risk-taking and market speculation. Leverage allows traders to command larger market positions with a relatively small amount of capital.
For example, if an exchange provides a leverage ratio of 10:1, a trader can control a $10,000 position with just $1,000 in margin deposits. This practice amplifies both gains and losses and raises the risk of liquidations when market conditions turn unfavorable, a scenario often leading to increased volatility.
Ether's leverage ratio exceeding 0.5 signifies substantial leverage trading compared to the actual coins available in exchange wallets. This level notably surpasses Bitcoin's estimated leverage ratio of 0.269, which is the highest since early 2023 but still below the record high of 0.36 recorded in October 2022.
Consequently, it is likely that ether will experience twice the price volatility of Bitcoin in the near future.