Here’s how the volume of cryptocurrency futures and the USD loan rate indicate market crashes.

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The dollar loan rate and futures volumes of certain cryptocurrencies can be followed to identify overheated markets before a crisis, according to data.

Every now and then, a new indication emerges that can be utilised to detect market price peaks and bottoms. Because the data comes from exchanges and on-chain data derived from the blockchain, this assumption is even more clear with cryptocurrencies.

Analysts and traders are continuously monitoring and commenting on these indications. Data from altcoin futures volumes and the Bitfinex U.S. dollar lending rate are used in some of the lesser-known indicators.

Altcoin volumes in futures markets indicate overheat

The volume of futures contracts is frequently three times, if not five times, that of conventional spot markets. This behaviour is not unique to cryptocurrency markets, as these contracts allow for leveraged trading. However, the analogy isn’t quite fair because the contracts are synthetic, whereas Bitcoin (BTC) is digitally rare.

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It is easy to determine what traders are focused on by monitoring the market share of Bitcoin, Ether (ETH), and the remaining altcoins.

Bitcoin, Ether and altcoins futures volume. Source: Coinalyze

In March, Bitcoin and Ether accounted for 65 percent to 85 percent of total volume, as shown in the graph above. Nonetheless, as cryptocurrencies grew in popularity, this figure fell to 45 percent for the first time on April 6. The whole cryptocurrency market capitalisation dropped by 20% 11 days later (on April 17).

This occurrence occurred again on May 6, when the market share of Bitcoin and Ether in derivatives trading fell to a new low of 39%. The overall market capitalisation fell by 12% on May 10th. It appears to be too much of a coincidence, and it’s reasonable to wonder if the market overheats whenever the market share represented by cryptocurrency derivatives increases.

There are multiple reasons to relate a sharp increase in altcoin volume to excessive optimism. For example, changing focus from Bitcoin and Ether indicates that investors no longer see much upside and are seeking options elsewhere.

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The Bitfinex U.S. dollar lending rate usually spikes ahead of crashes

Margin trading allows an investor to borrow money to increase the size of their trading position. Borrowing dolla, for example, allows one to purchase Bitcoin, so increasing their vulnerability. Although borrowing involves an interest rate, the trader anticipates that BTC’s price appreciation will pay for it.

When there is a lot of demand for the dollar lending rate, it usually means the market is becoming a little crazy.


Daily U.S. dollar lending rate (above) and Bitcoin price in USD (below). Source: Bitfinex

According to the statistics above, such an incident occurred four times in 2021, the most recent of which occurred on April 13, one day before Bitcoin’s all-time high of $65,800. For example, a 0.16 percent daily rate equates to a 5% monthly fee, which is prohibitively expensive even for the most optimistic investors.

Traders should remember that markets can stay irrational for as long as any investor can stay solvent. This means that irrationality, such as altcoin exuberance and buyers’ excessive use of leverage, might persist for long periods of time.

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Traders should always consider reducing their positions if numerous indicators hint to an overheating market. Going forward, the altcoin futures market share and the Bitfinex dollar lending rate should be carefully monitored when searching for market tops.

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