According to CoinDesk, a key indicator based on Bitcoin futures and options suggests that the market leverage level is too high, which may trigger leveraged liquidation. In recent weeks, Bitcoin (BTC) has been confined to a narrow trading range, waiting to break out.
The ratio of the implied yield basis, or the annualized spread between one-month futures prices and spot market prices, to one-month implied volatility induced by options has more than doubled this year to 0.34, according to data tracked by STS Digital, a crypto structuring and trading solutions firm.
"When the implied return basis is large relative to underlying volatility, it can mean that leverage and speculation levels are too high," said Jeff Anderson, senior trader at STS Digital. Excessive bullish speculation often leads to leverage washes, or forced liquidations due to margin shortages. So-called long liquidations can cause sharp price declines.
