Ether is quickly becoming the preferred cryptocurrency for traders looking to maximize their returns through leverage, outpacing Bitcoin in this area. While Bitcoin often attracts institutional attention, Ethereum’s ether (ETH) is increasingly the token of choice for those aiming to amplify profits with leveraged positions.
On Wednesday, Ether’s leverage ratio reached a new high of 0.57, up from 0.37 at the start of Q4 2024, according to data from CryptoQuant. This ratio is calculated by dividing the total open interest in futures contracts, both standard and perpetual, by the total ETH held in exchange-linked wallets offering these contracts.
An increase in the leverage ratio points to a rise in leverage usage, signaling that traders are becoming more speculative and willing to take on higher risks. Leverage allows traders to control larger market positions with smaller amounts of capital. For example, a 10:1 leverage ratio allows traders to manage a $10,000 position with just $1,000 in margin. While leverage can magnify both profits and losses, it also increases the risk of liquidations, where positions are automatically closed due to insufficient funds, contributing to market volatility.
Ether’s leverage ratio surpassing 0.5 suggests that a large portion of futures trading is being driven by leverage relative to the actual ETH held in exchange wallets. This is notably higher than Bitcoin’s current leverage ratio of 0.269. While this marks Bitcoin’s highest leverage ratio since early 2023, it is still much lower than the 0.36 ratio seen in October 2022.
Given the increased leverage, Ether may experience greater price volatility than Bitcoin in the near future, potentially experiencing twice the market fluctuations.
