BTC – LEVR: Leverage Efficiency & Volume Ratio

LEVR: Leverage Efficiency & Volume Ratio
Observation-only. Data: IntoTheBlock.

Overview
The Leverage Efficiency & Volume Ratio (LEVR) is a market structure oscillator designed to detect "Paper Bubbles" and "Organic Bottoms" by separating speculative greed from network utility. While most indicators analyze price action, LEVR analyzes market fragility. It operates on the thesis that Sustainable Rallies are driven by Spot/Network Activity, while Fragile Rallies are driven by Derivatives Leverage.

Synergy
How it works with VERI
LEVR is designed to be the tactical counterpart to the fundamental VERI Indicator (Valuation & Entity Ratio Index).

• Use VERI for Strategy: To identify Value. (Is Bitcoin cheap? Are Whales buying?)
  
• Use LEVR for Risk: To identify Structure. (Is the current price move real, or is it a leverage bubble about to pop?)
  

The "Perfect Setup"
The strongest buy signals occur when VERI is in the Accumulation Zone (Whales buying) AND LEVR is in the Organic Zone (Leverage is flushed out) (as it was the case in the Dec 2022 Bear Market Bottom).

Why LEVR is Unique
Standard indicators often fail to contextualize Open Interest:

• vs. Raw Open Interest: Raw OI always trends up over time as the market grows. LEVR solves this by normalizing OI against Active Addresses. This reveals when leverage is outpacing actual adoption.
  
  
• vs. ELR (Estimated Leverage Ratio): Classic ELR divides Open Interest by Exchange Reserves. However, Exchange Reserves are notoriously difficult to track accurately. LEVR uses Active Addresses (Network Utility) as a cleaner, more reliable denominator for network health.
  

Methodology
The Mathematics: The indicator calculates a normalized Z-Score ratio between two IntoTheBlock datasets:

• The Numerator (Greed): Perpetual Open Interest. The total dollar value of all open futures contracts. This represents the "Gambling" capital.
  
  
• The Denominator (Utility): Active Addresses. The number of unique addresses transacting on-chain. This represents the "Real" user base.
  

The Formula: LEVR = Z-Score ( Perpetual Open Interest / Active Addresses )

How to Interpret the Visuals
The line color changes dynamically to reflect the current risk regime:

🟥 Speculative Premium (Red Line > 2.0):

• Signal: "Leverage Bubble."
  
• Context: Open Interest is rising significantly faster than User Growth. The rally is fueled by debt.
  
• Risk: High probability of a "Long Squeeze" or liquidation cascade.
  

🟦 Organic Base (Blue Line < -1.5):

• Signal: "Spot Driven Market."
  
• Context: Speculators have been flushed out, but active network usage remains high. The line turns Blue to signal a healthy opportunity zone.
  
• Risk: Low. Historically marks robust bottoms where hands are strong.
  

🟧 Neutral (Orange Line):
The market is in a transition phase between organic growth and speculation.

Settings & Inputs
Users can customize the sensitivity of the Z-Score to fit their trading style (in brackets their current standard value):

Lookback Period (365): The rolling window used to establish the "Baseline." A 365-day window captures the yearly trend.

Signal Smoothing (7): A short moving average to reduce daily data noise.

Bubble Zone Top/Bottom (3.0 / 2.0): The thresholds for the Red Zone. Raising the "Top" value will only show the most extreme, generational leverage bubbles.

Organic Zone Top/Bottom (-1.5 / -2.5): The thresholds for the Green Zone. Lowering these values requires a deeper "flush" to trigger a signal.

Optimization
This indicator is mathematically optimized for the Daily (1D) timeframe. Using it on lower timeframes may result in noise due to the daily resolution of on-chain data.

Important Note on Historical Data
Please be aware that aggregated global Perpetual Open Interest data only becomes reliable and widely available starting around 2020-2021.

Pre-2021: The indicator will show a flat line or empty values. This is not a bug; it reflects the lack of historical derivatives market data for that period.

2021-Present: The indicator functions fully as intended.

Credits
Concept inspired by the "Estimated Leverage Ratio" (ELR) popularised by CryptoQuant and analysts like Willy Woo. LEVR adapts this concept for TradingView by substituting Exchange Reserves with Network Activity for better reliability.

Disclaimer
This tool is for research purposes only. It visualizes market structure data and does not constitute financial advice.

Tags
bitcoin, btc, open interest, leverage, on-chain, intotheblock, risk, derivatives, levr, veri