Here is how altcoin futures trading volume and U.S. dollar loan interest rates foreshadow a market crash


Every once in a while, a new indicator will pop up that can be used to detect the top and bottom of the market price. This statement is more obvious in cryptocurrencies, because the data comes from exchanges and on-chain data extracted from the blockchain.

These indicators are constantly monitored and commented by analysts and traders. Some lesser-known indicators use data from altcoin derivatives trading volume and Bitfinex dollar loan interest rates.

Altcoin trading volume in the futures market indicates overheating

The trading volume of futures contracts is usually three times or even five times that of the ordinary spot market. This phenomenon is not unique to the cryptocurrency market, because these contracts allow leveraged trading, but this comparison is not completely fair, because the contract is a synthetic product, and Bitcoin (Bitcoin) Is scarce in numbers.

By measuring Bitcoin’s market share, Ether (Ethereum) And the remaining altcoins, which can accurately analyze the content that traders pay attention to.

Bitcoin, Ethereum and Altcoin futures trading volume. Source: Coinalyze

The above chart shows that Bitcoin and Ethereum accounted for 65% to 85% of the total transaction volume in March. Nevertheless, as altcoins gain correlation, this number dropped to 45% for the first time on April 6. Eleven days later (April 17), the total market value of cryptocurrencies fell by 20%.

This phenomenon repeated itself on May 6, when the market share of Bitcoin and Ether in derivatives trading volume reached a historical low of 39%. On May 10, the total market value fell by 12%. This seems too coincidental. Whenever the market share of altcoin derivatives soars, it makes sense to consider whether the market is overheating.

There are multiple reasons for linking the dramatic increase in the number of altcoins with excessive optimism. For example, the shift in focus from Bitcoin and Ethereum shows that investors no longer see too much upside, but are looking for options elsewhere.

Bitfinex U.S. dollar loan interest rates usually soar before the crash

Margin trading allows investors to take advantage of their trading positions by borrowing money. For example, borrowing dollars will allow people to buy Bitcoin, thereby increasing their risk exposure. Although the borrowing involves interest rates, traders expect that BTC’s price appreciation will compensate for this.

Whenever there is excessive demand for dollar loan interest rates, this usually indicates that the market is becoming reckless.

Daily USD loan interest rate (top chart) and Bitcoin USD price (bottom chart). Source: Bitfinex

The above data shows that such incidents occurred four times in 2021, and the last occurred on April 13, the day before Bitcoin hit a record high of $65,800. For example, a daily rate of 0.16% is equivalent to a monthly fee of 5%, which is expensive even for the most optimistic investors.

Traders should remember that the market remains irrational longer than any investor remains solvency. This means that irrationality may prevail for a long time, including altcoin fanaticism and excessive leverage by buyers.

Whenever multiple indicators point to an overheated market, traders should always consider reducing their positions. Looking ahead, when looking for the top of the market, the market share of altcoin futures and Bitfinex USD loan interest rates should be carefully monitored.

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