Each occasionally, a brand new indicator pops out that can be utilized to detect value tops and bottoms available in the market. This assertion is much more evident in cryptocurrencies as a result of the info comes from exchanges and on-chain information extracted from the blockchain.
These indicators are continually monitored and commented on by analysts and merchants. Among the lesser-known metrics use information from altcoin derivatives volumes and the Bitfinex U.S. greenback lending fee.
Altcoin volumes in futures markets point out overheat
The futures contract quantity is often triple that of, and even 5 instances increased than, common spot markets. This phenomenon will not be 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 investigate precisely what merchants are specializing in.
The chart above reveals that Bitcoin and Ether represented 65% to 85% of the combination quantity in March. Nonetheless, as altcoins gained relevance, this determine dropped to 45% for the primary time ever on April 6. 11 days later (April 17), the overall cryptocurrency market capitalization tanked 20%.
This phenomenon repeated itself on Could 6 because the Bitcoin and Ether market share in derivatives volumes reached a historic low at 39%. On Could 10, the overall market capitalization dropped 12%. It looks as if an excessive amount of of a coincidence, and it is sensible to think about whether or not the market overheats every time 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 searching for choices elsewhere.
The Bitfinex U.S. greenback lending fee often 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 rate of interest concerned with borrowing, the dealer expects BTC’s value appreciation to compensate for it.
At any time when there’s extreme demand for the greenback lending fee, it’s often an indicator that the market is turning into reckless.
The above information reveals that such an occasion occurred 4 instances in 2021, and the final one occurred on April 13, in the future earlier than the $65,800 all-time excessive for Bitcoin. For instance, reaching a 0.16% every day fee is equal to a 5% month-to-month price, which is dear even for essentially the most optimistic traders.
Merchants ought to remember the fact that markets can stay irrational longer than any investor can stay solvent. Which means that irrationality can prevail for lengthy intervals, together with altcoin euphoria and the extreme use of leverage by patrons.
At any time when a number of indicators level to an overheating market, merchants ought to at all times contemplate lowering their positions. Going ahead, the altcoin futures market share and the Bitfinex greenback lending fee needs to be rigorously monitored when looking for market tops.
The views and opinions expressed listed here are solely these of the author and don’t essentially mirror the views of Cointelegraph. Each funding and buying and selling transfer includes threat. You need to conduct your personal analysis when making a call.