(Bloomberg) -- After a dry spell of several years, leverage is roaring back into crypto — helping to fuel a new bull run in Bitcoin and a fresh wave of worries.

The largest cryptocurrency jumped as much as 13% to $63,968 on Wednesday, the biggest intraday rise since last March, before paring the increase by more than half. It was the fifth consecutive day of progressively higher prices, spurred in part by optimism over inflows into exchange-traded funds approved last month.

“What started earlier as a potentially spot-led market off the back of increased demand and ETF inflow data has now transitioned to a full-fledged frenzy for upside expressed through perpetual futures,” said Chris Newhouse, a DeFi analyst at Cumberland Labs.

Leverage is seeping back into nearly all corners of the market, including NFTs, mining, decentralized finance apps and derivatives trading on mainstream exchanges. Aggregate open interest on Bitcoin derivatives — which can be leveraged up to 100 times — on centralized exchanges has risen nearly 90% since October, the highest level since the beginning of 2022, when the last crypto bull run collapsed, according to CCData. Crypto exchanges Binance, OKX, and Bybit have all seen their open interest rise to levels not seen since the peak of the 2021 bull market, per CCData.

“This represents an increase of 29% year-to-date, and the only period where it’s ever been higher — in US dollar terms — was November 2021, coinciding with Bitcoin’s all-time-high of $69,000,” said Coin Metrics Senior Solutions Engineer Parker Merritt. In other words, investors are getting levered up preparing for a new all-time high. Bitcoin is already up about 45% so far this year, after doubling in 2023 on anticipation the ETFs would be approved. 

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A so-called short squeeze may have been one of the driving forces for the rally on Wednesday. 

“Strong ETF flows leads to higher prices, forcing shorts to cover, pushing prices higher, a vicious cycle of solid momentum,” said Vetle Lunde, senior analyst at K33 research.

New long positions, especially the leveraged ones, in Bitcoin perceptual futures as well as rising demand in Bitcoin ETFs are among the other contributors to the surge.  

Options market shows traders are betting Bitcoin will reach $65,000 with the most open interest, which is the number of outstanding contracts, concentrated in call options that expire on Mar. 29, according to data from Deribit. 

“This move has been very sharp, leverage is very high at the moment, as implied by derivatives basis and funding rates, so I would not be surprised by a sharp correction” of 20% or more, said Jaime Baeza, founder at crypto hedge fund AnB Investments. 

Investors may have gotten a taste of that later Wednesday, when the price of Bitcoin briefly spiked back down by about 8% before rebounding. Coinbase Global Inc. said around the same time that users were experiencing problems on the largest US crypto exchange.

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