Each infrequently, a brand new indicator pops out that can be utilized to detect value tops and bottoms in the market. This assertion is much more evident in cryptocurrencies as a result of the information comes from exchanges and on-chain information extracted from the blockchain.
These indicators are continuously monitored and commented on by analysts and merchants. A few of the lesser-known metrics use information from altcoin derivatives volumes and the Bitfinex U.S. greenback lending rate.
Altcoin volumes in futures markets point out overheat
The futures contract quantity is normally triple that of, and even 5 occasions increased than, common spot markets. This phenomenon just isn’t unique to cryptocurrency markets, as these contracts enable leverage buying and selling, however the comparability is not precisely honest as a result of the contracts are artificial merchandise, whereas Bitcoin (BTC) is digitally scarce.
By measuring the market share of Bitcoin, Ether (ETH) and the remaining altcoins, it’s doable to research precisely what merchants are specializing in.
Bitcoin, Ether and altcoins futures quantity. Supply: Coinalyze
The chart above reveals that Bitcoin and Ether represented 65% to 85% of the mixture quantity in March. Nonetheless, as altcoins gained relevance, this determine dropped to 45% for the first time ever on April 6. 11 days later (April 17), the whole cryptocurrency market capitalization tanked 20%.
This phenomenon repeated itself on Could 6 as the Bitcoin and Ether market share in derivatives volumes reached a historic low at 39%. On Could 10, the whole market capitalization dropped 12%. It looks like an excessive amount of of a coincidence, and it is sensible to contemplate whether or not the market overheats at any time when the market share held by altcoin derivatives spikes.
There are a number of causes to narrate a pointy enhance in altcoin quantity to extreme optimism. For instance, altering focus from Bitcoin and Ether signifies that traders not see a lot upside and are in search of choices elsewhere.
The Bitfinex U.S. greenback lending rate normally spikes forward of crashes
Margin buying and selling permits an investor to leverage their buying and selling place by borrowing cash. For instance, borrowing dolla will enable one to purchase Bitcoin, thus rising their publicity. Though there’s an curiosity rate concerned with borrowing, the dealer expects BTC’s value appreciation to compensate for it.
Each time there’s extreme demand for the greenback lending rate, it’s normally an indicator that the market is changing into reckless.
Every day U.S. greenback lending rate (above) and Bitcoin value in USD (under). Supply: Bitfinex
The above information reveals that such an occasion occurred 4 occasions in 2021, and the final one occurred on April 13, sooner or later earlier than the $65,800 all-time excessive for Bitcoin. For instance, reaching a 0.16% day by day rate is equal to a 5% month-to-month payment, which is dear even for the most optimistic traders.
Merchants ought to take into account that markets can stay irrational longer than any investor can stay solvent. Because of this irrationality can prevail for lengthy intervals, together with altcoin euphoria and the extreme use of leverage by patrons.
Each time a number of indicators level to an overheating market, merchants ought to at all times think about lowering their positions. Going ahead, the altcoin futures market share and the Bitfinex greenback lending rate must be fastidiously monitored when looking for market tops.
The views and opinions expressed listed here are solely these of the writer and don’t essentially mirror the views of Cointelegraph. Each funding and buying and selling transfer entails danger. You need to conduct your personal analysis when making a choice.