Dilution-proof
Why the Estimated Leverage Ratio is a bit misleading
The Estimated Leverage Ratio is calculated by dividing the Open Interest by exchange BTC reserves. This metric is IMO conceptually very interesting but realistically misleading - especially on longer timeframes. Over the last year, the percentage of cash-margined contracts increased a lot, causing an upward drift in this metric that does not represent an increase in actual leverage. Perhaps this could in theory be overcome by including exchange stablecoin (and fiat, if that data were available) reserves as well, but since those are likely used as trading pairs and/or collateral for many more assets, that probably also will not improve the accuracy of the metric. If anyone has any thoughts, suggestions or corrections on the content of this post, feel free to share them in the comments below!