Ethereum's leverage ratio breaks its own record: Liquidation risk is rising

The Ethereum market is sending worrying signals in the third week of March. The Estimated Leverage Ratio (ELR) of ETH on Binance has reached an all-time high.

What does this signal mean, and what risks could it pose for Ethereum traders?

Ethereum’s estimated leverage ratio on binance reaches a record high

According to CryptoQuant, Ethereum’s Estimated Leverage Ratio (ELR) on Binance has hit a record level of 0.751.

Analyst MorenoDV explained that this means more than 75% of Ethereum trading on the platform uses leverage. This level is even higher than the 0.55 recorded in the week leading up to October 10 last year, when the entire market experienced a sharp downturn that triggered $19 billion in liquidations.

“Importantly, this expansion in leverage has occurred rapidly and with little consolidation. This suggests that a significant portion of ETH’s recent upside has been driven by derivatives flows rather than sustained spot demand,” MorenoDV explained.

Ethereum’s Estimated Leverage Ratio on Binance. Source: CryptoQuant

CryptoQuant analyst Arab Chain also stated that the ELR has historically fluctuated within a narrow range. The recent spike signals that the market is entering a high-risk phase.

This is not the first time the market has seen rising leverage. However, breaking the historical peak is enough to make investors cautious.

“Historically, such elevated levels are often associated with a higher probability of sharp price swings, as even minor price movements can trigger cascades of liquidations in both long and short positions,” Arab Chain said.

Another explanation

Could a liquidation event similar to October 10 happen again? While the 0.751 figure appears alarming, several other important data points need consideration.

The ELR is calculated by dividing Open Interest (OI) by Exchange Reserves. This means the ratio can rise when OI increases sharply, or when the amount of ETH held on exchanges declines.

Data from Coinglass shows that Ethereum’s Open Interest on Binance has increased by $1.5 billion since the beginning of the month, reaching $6.6 billion. However, it still remains far below the more than $12 billion recorded in October last year.

Ethereum’s Open Interest on Binance. Source: Coinglass

In addition, a recent report from BeInCrypto shows that ETH reserves on exchanges have dropped sharply to their lowest level on record.

According to BeInCrypto, institutions are accelerating the shift of ETH into staking. They are withdrawing assets from exchanges to earn yield. This reflects strong long-term confidence in Ethereum, but it can also push the ELR higher.

Regardless of the explanation, analysts’ warnings still carry weight. ETH has recently dropped more than 6% after the Federal Reserve announced it would hold interest rates steady. This move triggered over $153 million in liquidations, mostly from long positions.