Bitcoin Dips Below $59K as Leverage Ratio, SHIB Rally Signal Excess Speculation

Bitcoin is trending down amid signs of excess leverage and greed in the market.

The largest cryptocurrency by market value was changing hands at around $ 58,900 at press time, representing a 2.3% drop on the day. It's 12% less than last week's record of $ 66,975, CoinDesk 20 data shows.

A pullback was overdue, and there could be more downside volatility on the horizon, according to analysts. “The estimated leverage ratio is about to hit a high for the year. It seems obvious that the market is over-leveraged now, ”said Ki Young Ju, CEO of data analytics firm CryptoQuant. "We will see some volatility with large sell-offs shortly."

The estimated leverage ratio is calculated by dividing the futures open interest on all exchanges by the bitcoin reserves on the exchanges. Open interest refers to the number of contracts traded but not compared to an offsetting position.

Basically, the ratio shows the degree of leverage of an average investor. While a rising index indicates a greater appetite for risk, a very high number reflects an excessive build-up of leverage and price spikes set earlier this year.

The leverage ratio currently stands at 0.19, the highest since last November.

The broader recent market activity, especially the parabolic surge of shiba inu (SHIB), the self-proclaimed dogecoin killer, also points to excess greed that is often seen at the highest points in the market, such as CoinDesk warned Sunday.

"Dog coins are coming back to the moon, which has historically been a very good indication of an overheated market," analysts at Delphi Digital said in a market note. published on Monday. “The first time dog coins went crazy was in April - May of this year, and they quickly collapsed as the cryptocurrency markets cooled off. In early September, doggy coins were back in vogue and the crypto market as a whole experienced a fairly deep weakening. "

The story continues

SHIB posted a record $ 0.0000595 during Asian business hours, taking the month-to-date profit to more than 600%, Messari data shows. The token has gained 48% this week, courtesy of the SHIB army. frenzied campaign for the online brokerage platform Robinhood Markets to add the coin to their platform.

Earlier today, #shibainu was the main Twitter trend in India, the second most populous country in the world. A spokesperson for Mumbai-based WazirX, one of India's largest crypto exchanges, said that SHIB has surpassed bitcoin's position as the most traded token on the Indian rupee market this week, generating volume of $ 489 million.

An increase in activity in a high-risk coin like SHIB indicates that speculative fervor may be reaching a tipping point. "The Crypto Fear and Greed Index has returned to highs we have not seen since early March, officially marking 'Extreme Greed' levels," Delphi Digital said in Tuesday's market update.

Additionally, the optimism generated by the recent launch of futures-based bitcoin exchange-traded funds and the bullish mood appears to have waned. The widely touted cryptocurrency as digital gold failed to land an offer during Asian business hours despite Australia reported core inflation in a maximum of six years. According to JPMorgan, rising inflation expectations played a major role in propelling bitcoin to new all-time highs earlier this month.

Bitcoin's technical picture now supports the case for a deeper pullback. The drop below the support at $ 59,800 has confirmed a bearish head and shoulders reversal pattern, exposing the support near $ 54,000.

The sell-off can be much more severe if traditional markets weaken due to increasing odds of a more rapid reduction in stimulus from the US Federal Reserve.