What to know:
- Traders are taking higher leverage risks in ether futures.
- ETH leverage ratio is markedly higher compared to BTC.
While Bitcoin (BTC) attracts significant attention for institutional investments, Ethereum's ether (ETH) is emerging as the preferred asset for traders aiming to amplify returns through leverage.
The latest metrics reveal that ether's leverage ratio has soared to an all-time high of 0.57, up from 0.37 just a few months earlier, according to data from the analytics company CryptoQuant.
The leverage ratio is determined by dividing the total open interest in futures and perpetual contracts available globally by the total number of ETH held in exchange wallets that offer futures trading.
A rising ratio signals traders' increasing willingness to use leverage, reflecting heightened levels of speculation and risk-taking in the market. Leverage empowers traders to control larger positions with a smaller amount of capital. For example, a leverage ratio of 10:1 allows traders to manage a $10,000 position using only $1,000 as margin. However, this increases both the potential profits and losses, elevating the risk of liquidations due to margin deficiencies when market conditions shift unfavorably.
Ether's leverage ratio remaining above 0.5 indicates a substantial degree of leveraged trading in the futures market versus the actual coins available in exchange wallets. This is considerably higher than Bitcoin's leverage ratio, which stands at about 0.269, the most notable level since early 2023 but still below its peak of 0.36 seen in October 2022.
Given these developments, we may see Ether experiencing approximately twice the price volatility compared to Bitcoin in the near future.
Ether's estimated leverage ratio. (CryptoQuant)
BTC's estimated leverage ratio. (CryptoQuant)
