Each on occasion, 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 information comes from exchanges and on-chain knowledge extracted from the blockchain.

These indicators are continuously monitored and commented on by analysts and merchants. A few of the lesser-known metrics use knowledge from altcoin derivatives volumes and the Bitfinex U.S. greenback lending charge.

Altcoin volumes in futures markets point out overheat

The futures contract quantity is often triple that of, and even 5 instances greater than, common spot markets. This phenomenon just isn’t unique to cryptocurrency markets, as these contracts permit 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 attainable to research precisely what merchants are specializing in.

Bitcoin, Ether and altcoins futures quantity. Supply: Coinalyze

The chart above exhibits 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 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 smart to contemplate whether or not the market overheats each 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 in search of choices elsewhere.

The Bitfinex U.S. greenback lending charge 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 permit one to purchase Bitcoin, thus growing their publicity. Though there’s an rate of interest concerned with borrowing, the dealer expects BTC’s value appreciation to compensate for it.

Every time there’s extreme demand for the greenback lending charge, it’s often an indicator that the market is turning into reckless.

Day by day U.S. greenback lending charge (above) and Bitcoin value in USD (beneath). Supply: Bitfinex

The above knowledge exhibits that such an occasion occurred 4 instances 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% every day charge is equal to a 5% month-to-month payment, which is expensive even for essentially the most optimistic traders.

Merchants ought to remember 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 consumers.

Every time a number of indicators level to an overheating market, merchants ought to at all times think about decreasing their positions. Going ahead, the altcoin futures market share and the Bitfinex greenback lending charge must be rigorously monitored when looking for market tops.

The views and opinions expressed listed below are solely these of the author and don’t essentially replicate the views of Cointelegraph. Each funding and buying and selling transfer entails danger. It’s best to conduct your individual analysis when making a call.