While bitcoin (BTC) grabs all the eyeballs from institutional narratives, Ethereum’s ether (ETH) stands out as the go-to major token for traders looking to maximize profits through leverage .
Ether’s estimated leverage ratio, which measures the level of leverage used by traders, climbed to a new high of 0.57 on Wednesday, marking a significant increase from 0.37 at the start of the last quarter of 2024, data show tracked by analytics firm CryptoQuant.
The ratio is calculated by dividing the aggregate open interest in standard futures and long-term futures contracts listed worldwide by the total number of ETH in wallets tied to exchanges that offer futures trading.
A rising ratio suggests that traders are increasingly using leverage, indicating an increase in risk-taking and market speculation. Leverage allows traders to control larger market positions with a relatively small pool of capital.
For example, if an exchange offers a leverage ratio of 10:1, a trading entity can control a position worth $10,000 with only $1,000 in margin deposit. The use of leverage magnifies both profits and losses and increases the risk of liquidations – forced closings due to margin shortfalls – when the market moves against leveraged positions, a dynamic that often produces volatility.
Ether’s leverage ratio of more than 0.5 means a large amount of leverage trading is happening in the futures market relative to the presence of actual coins in the exchange wallet.
An Ether leverage ratio of more than 0.5 indicates that a large amount of leveraged trading is occurring in the futures market compared to the actual coins available in the exchange wallet.
This level of leverage is higher than Bitcoin, which has an estimated leverage ratio of 0.269 at press time, the highest since early 2023, but still below the record high of 0.36 seen in October 2022.
So, don’t be surprised if ether experiences twice the price volatility of bitcoin in the near future.
