Each every now and then, 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 info comes from exchanges and on-chain information extracted from the blockchain.

These indicators are continuously 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 charge.

Altcoin volumes in futures markets point out overheat

The futures contract quantity is often triple that of, and even 5 occasions greater 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 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 doable 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 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 Might 6 because the Bitcoin and Ether market share in derivatives volumes reached a historic low at 39%. On Might 10, the overall market capitalization dropped 12%. It looks like 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 improve in altcoin quantity to extreme optimism. For instance, altering focus from Bitcoin and Ether signifies that traders now not see a lot upside and are looking for 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 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 charge, it’s often an indicator that the market is changing into reckless.

Each day U.S. greenback lending charge (above) and Bitcoin worth in USD (beneath). Supply: Bitfinex

The above information exhibits that such an occasion occurred 4 occasions in 2021, and the final one occurred on April 13, someday earlier than the $65,800 all-time excessive for Bitcoin. For instance, reaching a 0.16% day by day charge is equal to a 5% month-to-month price, which is dear even for essentially the most optimistic traders.

Merchants ought to understand that markets can stay irrational longer than any investor can stay solvent. Which means that irrationality can prevail for lengthy durations, together with altcoin euphoria and the extreme use of leverage by consumers.

Each time 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 charge needs to be rigorously monitored when trying to find market tops.

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