Bitcoin Market Faces Sharp Deleveraging as Investors Exit Risk Positions

After plunging to $98,000, Bitcoin’s price has staged a recovery, climbing back to levels above $100,000. There has also been a dramatic drop in the Estimated Leverage Ratio (ELR), which highlighted a significant investor exit from risk amid increased geopolitical tensions.

In fact, the ELR plunged to -0.25 within just three days, levels not seen since the aftermath of China’s 2021 crypto mining ban, when it hit -0.35, but over a longer period of one month.

Traders Flee Risk Amid Uncertainty

According to CryptoQuant’s analysis, this sharp and rapid decline signals a wave of deleveraging, where both forced liquidations and voluntary position closures have reduced Open Interest across derivatives markets. The immediate catalyst appears to be the escalating conflict between the US and Iran, which has injected a fresh wave of uncertainty into already fragile markets.

Such a swift ELR contraction means that market participants are aggressively pulling back from risk, as they anticipate further volatility. While this trend reflects short-term caution, CryptoQuant suggests that panic-driven selloffs may also create strategic opportunities for longer-term investors.

Despite this, the current environment is one of rising unpredictability, and leveraged trades now come with amplified risk. This phase matches historical stress points and is indicative of a market recalibration that could either stabilize with time or descend further depending on macroeconomic and geopolitical developments.

Bitcoin’s Bull Cycle May Still Be Intact

Even as the market struggles amidst volatility, on-chain data shows that long-term holders remain resilient, choosing to hold rather than sell.

One key indicator, the Binary CDD 30-day moving average, has stayed below the critical 0.8 threshold and peaked instead at around 0.6 before beginning to decline. This behavior essentially means that long-term investors are not actively moving or spending older coins. The absence of high CDD activity implies that seasoned holders still expect further upside.

While some cooling is evident, especially after a period of aggressive price action, the lack of major distribution from long-term wallets hints that the bull cycle remains intact. As in past cycles, Bitcoin often climbs higher in a “staircase” pattern – pausing, consolidating, then rallying further.

The muted on-chain activity and subdued sentiment could, counterintuitively, set the stage for the next leg up, as history shows Bitcoin tends to rally hardest when few are paying attention.