2024-12-22 17:00 |
In the latest insight report by blockchain analytics firm CryptoQuant, Binance presently holds the best leverage ratio as the crypto bull run prepares to take off.
Despite a major general price crash in the past week, investors and market analysts remain expectant of massive gains by several digital assets over the next year in line with historical data. The leverage ratio of centralized exchanges presents a crucial factor ahead of this potentially highly bullish period that promises high market activity.
Related Reading: Crypto And Bitcoin Go Mainstream In 2024: Here Are 5 Major Trends Binance, OKX Present Low Leverage Ratio As Other CEXs Show Potential Liquidity RisksIn the crypto market, the leverage ratio represents how much an exchange’s open interest compares to its reserve asset. A high leverage ratio means there is more trading activity relative to reserves increasing the risk of liquidity issues in volatile market conditions.
Assessing the leverage ratio of centralized exchanges has grown more critical following the FTX exchange collapse in 2022. A high leverage ratio was a key contributor to the exchange’s demise as there were insufficient reserve assets (zero) to back trading activity.
Therefore, monitoring leverage ratios is crucial for assessing the financial health of exchanges. During a bull market, increased trading activity can amplify leverage risks, especially if exchanges do not adequately back their positions with reserves.
With the crypto bull run on the horizon, CryptoQuant reports Binance emerged among other exchanges with strong reserves in Bitcoin, Ethereum, and USDT relative to trading activity.
The Malta-based exchange boasts of a low leverage ratio that has increased slightly from 12.8 in December 2023 to December 2024, despite a 2.6x increase in Bitcoin open interest (from $4.45 billion to $11.64 billion). Alongside Binance, OKX which is a relatively smaller exchange also holds a low leverage ratio indicating a conservative risk management system.
However, other exchanges namely Gate.io, ByBit, and Derbit present significantly higher leverage ratios to the tune of 106, 86, and 32, respectively. This report indicates that Bitcoin and Ethereum’s Open Interest on these exchanges are far higher than reserves and may be liable to liquidity issues in the long run.
Crypto Market OverviewAt press time, the total crypto market is now valued at $3.26 trillion reflecting a 3.34% gain in the past day. Bitcoin remains the market leader with dominance levels of 57.1%. The premier cryptocurrency trades at $97,258 following a mild recovery from the mid-week price crash after the US Federal Reserve announced a possible reduction of its initial four planned interest rate cuts in 2025 to two citing expected elevated inflation.
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