If one views the leverage ratio as "overleveraged," it can be interpreted as a sign of market overheating. However, depending on how it is analyzed, the interpretation can be entirely different. The increase in the leverage ratio in the USDT futures market can be seen as an indication that a futures-driven price surge is imminent. This is not a sign of overheating, but rather evidence that ample liquidity is prepared in the futures market. Similarly, before the price surge in October 2020, the USDT futures leverage ratio also reached new highs.
Written by Mignolet
