Binance Leads CEXs In Leverage Ratio As Crypto Bull Run Approaches: Report

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As a seasoned researcher with years of experience navigating the tumultuous waters of the cryptocurrency market, I find myself constantly monitoring the leverage ratios of centralized exchanges. The recent report by CryptoQuant has piqued my interest, particularly because it highlights the financial health of exchanges in the lead-up to a potential bull run.

According to a recent analysis from cryptocurrency data provider CryptoQuant, Binance currently boasts the most favorable leverage ratio as the crypto market’s bullish trend gears up for launch.

Regardless of the significant drop in prices recently, there’s optimism among investors and analysts about substantial returns for various digital assets within the next year based on past trends. The borrowing capacity of centralized exchanges is a significant factor to consider as we approach what could be an extremely active market period with high bullish potential.

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 Risks

In the world of cryptocurrencies, the leverage ratio shows the comparison between a trading platform’s total outstanding contracts (open interest) and its primary holding (reserve asset). When this ratio is high, it indicates a greater level of trading compared to reserves. This can lead to potential liquidity problems during unstable market conditions as the increased activity magnifies risks.

As a researcher, I’ve found it increasingly crucial to evaluate the leverage ratios of centralized exchanges, particularly in light of the FTX exchange failure in 2022. A high leverage ratio was a significant factor leading to its downfall, as the exchange apparently lacked adequate reserve assets (none) to support trading activities.

Consequently, keeping tabs on leverage ratios is vital to evaluate an exchange’s financial stability. In periods of rising markets, heightened trading activity could magnify leverage risks significantly, potentially causing issues when exchanges fail to secure their transactions with sufficient reserves.

As the cryptocurrency market is gearing up for a potential rise (bull run), data from CryptoQuant indicates that Binance has built up substantial reserves of Bitcoin, Ethereum, and Tether (USDT) compared to its trading volume among other exchanges.

In the past year, from December 2023 to December 2024, the Malta-based cryptocurrency exchange has seen a small increase in its already low leverage ratio, even as Bitcoin open interest surged by 2.6 times (from $4.45 billion to $11.64 billion). Similar to Binance, OKX, a smaller exchange, also maintains a conservative risk management system with a low leverage ratio.

On the other hand, trading platforms like Gate.io, ByBit, and Derbit offer much greater leverage levels (up to 106, 86, and 32 respectively). This suggests that the Open Interest for Bitcoin and Ethereum on these exchanges is substantially larger than their reserves, potentially exposing them to potential liquidity problems in the future.

Crypto Market Overview 

Currently, the overall crypto market is worth approximately $3.26 trillion, representing a 3.34% increase over the past day. Bitcoin continues to lead the pack, accounting for 57.1% of the market. Its current price stands at around $97,258, rebounding slightly after a dip following the US Federal Reserve’s announcement that they might scale back their planned four interest rate cuts in 2025 from four to two, due to anticipated higher inflation rates.

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2024-12-22 17:11