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Here's Your On-Chain Checklist for Cryptocurrency Market Reversal

Fri, 07/08/2022 - 12:43
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Arman Shirinyan
When these conditions are met, we will most likely see a new rally on BTC
Here's Your On-Chain Checklist for Cryptocurrency Market Reversal
Cover image via stock.adobe.com

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of U.Today. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

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Blockware Intelligence analyst Will Clemente has shown three on-chain metrics that can be used to determine a reversal on the market and a starting bullrun. 

Rising open interest

One of the first indicators that can help investors determine the change of sentiment on the market is open interest in the cryptocurrency derivatives market. The analyst believes that a reversal will be signaled by spot bidding into disbelief from derivatives. 

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Generally, rising open interest suggests that risk demand is returning to the market and traders are ready to back up their positions with leverage, creating more momentum for the trending asset.

Negative funding regime

The negative funding rate is a condition in which short positions are paid for longs. It can show that shorts need additional leverage, which is the mechanism of balancing the derivatives' price with the spot asset. At some point, longs will also demand more leverage, which causes the funding rate to turn positive, and they will be the ones paying fees to sellers.

Historically, a low or negative funding rate could be an indicator of upcoming buying power as Bitcoin and other cryptocurrencies used to rally only when bears paid fees to bulls.

"Backwardation"

"Backwardation is a relatively rare market condition when the price of the spot asset becomes higher than prices on the futures market. Usually, backwardation appears whenever a spot asset faces an unusually high demand.

Previously, such a condition was reached on a few exchanges like FTX, which could be a sign of an upcoming wave of rising demand on the spot asset. As for now, the trading volume on BTC remains extremely low as the cryptocurrency is changing hands at $21,650.

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About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.