Each on occasion, a brand new indicator pops out that can be utilized to detect worth tops and bottoms available 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 fee.
Altcoin volumes in futures markets point out overheat
The futures contract quantity is normally triple that of, and even 5 occasions greater than, common spot markets. This phenomenon is just not unique to cryptocurrency markets, as these contracts enable leverage buying and selling, however the comparability is not precisely truthful 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 potential to investigate precisely what merchants are specializing in.
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 primary time ever on April 6. 11 days later (April 17), the entire cryptocurrency market capitalization tanked 20%.
This phenomenon repeated itself on Might 6 because the Bitcoin and Ether market share in derivatives volumes reached a historic low at 39%. On Might 10, the entire 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 buyers not see a lot upside and are looking for choices elsewhere.
The Bitfinex U.S. greenback lending fee 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 growing their publicity. Though there’s an rate of interest concerned with borrowing, the dealer expects BTC’s worth appreciation to compensate for it.
Each time there’s extreme demand for the greenback lending fee, it’s normally an indicator that the market is turning into reckless.
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% each day fee is equal to a 5% month-to-month price, which is expensive even for probably the most optimistic buyers.
Merchants ought to remember the fact that markets can stay irrational longer than any investor can stay solvent. Which means irrationality can prevail for lengthy durations, 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 take into account 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 replicate the views of Cointelegraph. Each funding and buying and selling transfer entails threat. It’s best to conduct your individual analysis when making a call.